Medical Debt Consolidation: Is It Worth It? It’s Complicated

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According to Forbes, more than half of American adults now owe some medical debt. A report from KFF shows that about 11 million owe more than $2,000, and three million people owe more than $10,000. It’s no wonder people might be looking for debt relief.

According to Kaiser research, the medical debt stood at $195 billion or more in 2019, and 2021 consumer credit reports disclosed around $88 billion in past-due in medical debt.

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Can you consolidate medical debt?

Yes. The question is whether you should. Consolidating medical bills will usually require taking out a loan, and you’ll likely have to pay interest. But medical debt won’t accrue interest no matter how long it takes you to pay. So even though consolidation might lower your monthly payment, you’ll pay more in the long run due to interest charges.

Repayment rules for medical debt are also more lenient. For instance, you’ll have to miss a year’s worth of payments before it will appear on your credit report. That year’s worth of time is intended to allow you to work out payment issues with your providers and health insurance company. If you refinance your medical debt and can’t make the payments for some reason, the hit to your credit score — and calls from debt collectors — will be much quicker.

Medical collections rules are different

Many people believe that making regular on-time payments toward medical bills will be enough to prevent debt collection. But medical bills don’t typically have minimum payments. This means that a healthcare provider could still turn the unpaid bill over to a collection agency even if you’re making partial payments. Some will do this once the account is 30 past due. Others will wait for 60, 90, or even 180 days.

Once a medical bill is one year late, the three major credit bureaus (Experian, Equifax and TransUnion) will list it on your credit report. When this happens, your credit score will decrease.

According to the federal Department of Health and Human Services, medical debt is currently capped at an interest rate of 9 3/8%, so using a credit card or personal loan with a higher interest rate doesn’t make sense. Instead, you’re better off negotiating a payment plan.

The rules for unpaid medical debt changed earlier this year: As of July, the three major credit bureaus stopped listing unpaid medical bills on your credit reports until they’re one full year late. Additionally, all medical debt that was in collections but then paid was wiped off credit reports. 

The Consumer Financial Protection Bureau (CFPB) reported that Americans have $88 billion in debt and 70% of negative medical debt was wiped out by these changes.

Here are some of the significant changes if you don’t pay medical bills that became effective July 1, 2022 :

  • Credit reports will no longer include paid medical debt paid in full
  • You will have up to one year before unpaid medical debt is reflected on your credit report, up from six months
  • Starting the first half of 2023, all three major credit bureaus will no longer include medical debt in collections under $500

Here’s a little bit more about the new medical debt collection laws:

Before you refinance medical debt

Here are some steps and questions to ask before deciding if a medical debt consolidation plan is right for you.

  • Can you manage the multiple payments to various healthcare providers?
  • Can you pay the medical bills if you rework your budget?
  • Can you afford the interest rate for the refinance, and does it make sense?
  • Are you able to find a loan regardless of my credit score?
  • Is it possible to use a credit card to refinance medical debt?
  • Have you considered using a debt management plan to negotiate with creditors?

How to get help with medical bills

If you have outstanding medical debt, here’s what you can do right now to manage it.

Review the bill

Are there mistakes, incorrect charges, items your insurance should be covering, or any double billing? Call your provider’s billing department and question anything you don’t recognize. You can also file an appeal with your insurance company and with your medical provider’s patient advocacy group if you need to dispute a charge.

True story: A guy broke his ulna and went to urgent care. At urgent care, the x-ray discovered it wasn’t a nasty fracture. They put him in a wrist brace and sling, gave him some pain meds, and he would be fine but let it heal for six weeks—no cast, no surgery, nothing major.

The bill came. It was for $8,500. He was shocked. How could an urgent care visit and x-ray cost $8,500?

In the end, he discovered that the medical billing code was one digit off — meaning they billed him for a broken ulna surgical repair (actual surgery to repair the bone) versus a fractured ulna non-surgical consultation. One error in medical billing sent the price from about $800 for the urgent care visit and x-ray to $8,500.

Do you qualify for financial assistance programs?

Programs like CHIP and Medicaid are specifically there to help low-income patients lower the cost of healthcare. Check with benefits.gov for any programs in your area you may qualify for. You will be asked to provide proof of income and an itemized list of monthly expenses, and Medicaid could cover your medical bills in total if approved.

Try to negotiate

You may be able to negotiate medical expenses with the hospital or facility. But, in most cases, you will need to do this before seeking treatment. Contact your medical provider for an estimate of what you’ll owe. Then, contact your insurance provider to see what they’ll cover. Make sure the facility is in-network.

Once you’ve figured out the difference, call the billing department again. Be honest about what you can afford and see if there are ways to reduce costs. Lowering costs include skipping a non-essential procedure or getting a generic prescription.

You can also ask if there are any waivers, hardship or relief programs available or a discount for making a prompt down payment. Some providers may also offer payment plans with low or no interest.

Ask your employer or union representative if they offer medical bill negotiation benefits. Professional companies can also review your bills and negotiate on your behalf. There may be a one-time fee based on your savings or a combination of the two.

Work out a payment plan

Whether or not you qualify for a payment assistance program, it doesn’t hurt to try to set up a payment plan. Many healthcare providers offer this option to those who ask. Payment plans for medical services are often interest-free and more affordable than paying all at once. If you reach an agreement, ask for it in writing.

Some medical providers offer in-house financing, even to patients with poor credit. A third party foots the bill for your treatment and places you on a structured medical bill payment plan. You will have to pay interest, so don’t choose this option if you can pay your bill using an interest-free method.

Hire a patient advocate

A patient advocate, or a medical billing advocate, will help if your medical debt is overwhelming. These patient advocates will review your medical bills for errors or other issues. They’re familiar with any patient assistance programs and charity care options that might be available. They charge by the hour – typically between $100 and $165 – so be prepared for that. If they manage to lower your bill, they may charge between 20% and 30% of the amount saved.

If you’re considering this route, go to the Alliance of Claims Assistance Professionals to find an advocate.

Medical debt consolidation options

If you can’t negotiate, are overwhelmed, or have multiple types of debt in addition to your medical bills, debt consolidation could be the answer. There are a few different ways you can consolidate medical bills.

Medical credit card

The CareCredit card has a $0 annual fee, 0% to 17.9% APR for 6 to 60 months and 26.99% APR after that, and a maximum late fee of $40. For purchases of $200 or more, you can receive a 0% APR period of 6, 12, 18, or 24 months. You will need a credit score of about 600 to qualify. You can also use this card for more than 225,000 healthcare providers in the U.S. and to purchase pharmaceutical and health-related products at thousands of retailers and drugstore chains nationwide.

Balance transfer credit card

A balance transfer involves moving debt from a high-interest credit card to a new card with a lower interest rate, ideally with an introductory 0% period. Essentially, you’re using one card to pay off another, but in this case, it’s paying off the medical debt.

Many cards offer a grace period where you pay no interest or a very low introductory interest rate. 

Home equity loan (HELOC)

A home equity line of credit, also known as a HELOC, is a line of credit that’s secured by your home. The lender gives you a revolving credit line to use for significant expenses or to consolidate higher-interest rate debt on other debt such as medical bills. Because you’re using your home as collateral, it’s easier to qualify for a HELOC because the risk to the lender is minimal.

Debt consolidation loan or personal loan

A debt consolidation loan is one way to refinance your medical debt. You’ll apply for an installment loan for the amount you owe on your existing debts, and once approved, you’ll use the funds to pay off your medical balances. Then you’ll pay down the new loan over time. They are unsecured loans, ideally with a low-interest rate.

Other medical debt relief options

A professional debt management program could help. These include:

Debt settlement

A debt settlement company has you stop paying your creditors as they negotiate a lower payment. Then, the debt settlement company pays the creditors on your behalf. Essentially, it seems like you save money and the debt settlement company takes care of getting the payments to your creditors for you.

The good news is that as of July 1, 2022, paid medical debt is no longer included on credit reports from Equifax, Experian, and TransUnion — even if it has been on your account for several years.

Debt management plan

With a debt management plan, a credit counselor negotiates with your medical creditors to reduce your interest rates and fees or lower monthly payments. Though credit counseling agencies are usually nonprofit, you will have to pay a small monthly fee for setting up and managing the plan.

If all else fails…

File for bankruptcy

Bankruptcy is a “Break Glass in Case of Emergency” situation.

Bankruptcy will discharge most unsecured debt, including your unpaid medical bills and credit card debt, but not most student loans. It will hurt your credit for seven to ten years but could offer a fresh start.

The bottom line

Refinancing medical debt can add years to the life of your loan. Try the remedies we suggested before taking out a medical consolidation loan that will cost you much more. And try to work out your medical bill using an interest-free method first.

FAQs

Will medical debt consolidation affect your credit score?

It depends. Your score will take a small ding if you are taking out a personal loan to pay off medical bills because the lender will run a hard credit inquiry to determine your creditworthiness to the lender. Hard inquiries assess your FICO score and other factors and affect your credit score. And if you don’t pay the loan on time or don’t make payments, this will also negatively affect your credit scores. 
If you are directly negotiating with the medical provider and creating a payment plan, the healthcare provider could still turn the unpaid bill over to a collection agency. Some do this once the account is 30 days late. Others will wait for 60, 90, or even 180 days. Starting July 1, 2022, you will have up to one year before the medical debt is reflected on your credit report, up from six months. Left unpaid, this can harm your credit scores. But, all three major credit bureaus will no longer include medical debt in collections under $500.

How long can medical bills be collected?

Seven years or until the statute of limitations in your state is up, whichever is longer. And here’s one more caveat: While unpaid medical bills will come off your credit report after seven years, you’re still legally responsible for them.

What’s the average cost of a hospital stay in the U.S.?

According to healthcare.gov, the average cost of a 3-day hospital stay is around $30,000. Comprehensive cancer care can cost hundreds of thousands of dollars.

How much does it cost to have a baby?

According to U.S. News and World Report, did you know that the average cost for a middle-income married couple to raise a child born in 2022 is $267,000 over 18 years? Childbirth can range from $8,000 in Arkansas to $20,000 in New York. Additional costs include prenatal care, monthly check-ups, routine lab work, ultrasounds, fetal DNA testing, glucose screenings, amniocentesis, supplemental health insurance, baby gear, increases in your food bill, child care costs, lost wages and possible postpartum office visits. If you or your baby have complications and need specialized care, this will add additional costs.
Use this calculator to see how much it is going to cost you.

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