How to Prevent Medical Bills from Destroying your Credit

Unpaid medical bills can quickly turn good credit into bad credit once they are sent to a collection agency. And if you read that statement and thought, “well that will never happen to me, I have good health insurance”…think again!

Plenty of people WITH health insurance still go bankrupt after amassing massive medical debt due to costly surgeries or treatments for serious illnesses. In fact, medical bills are cited as the number one reason Americans have to file personal bankruptcy.

Medical bills not only cause many individuals to file for bankruptcy, but they can also often destroy credit scores as well. Can you imagine a scenario where for 20-plus years you pay every single mortgage statement, every utility bill, and every credit card account on time and in full? Where you proudly boast of an excellent credit score, knowing that loans with low interest rates are available to you whenever they are needed.

And then all of that is wiped away after a year of massive medical bills for the surgery you never expected or for a disease you never thought you would have. Remember, this can and does happen.

Excellent credit scores are wiped out by medical bills, and you owe it to yourself to plan for the unexpected. Your future financial health is always one medical emergency away from jeopardy. And for reasons beyond protecting your credit score (such as the ability to pay your kids’ college tuition or the ability to retire early or simply the ability to take the vacations you’ve always dreamed of) you need a smart and organized plan in place for medical expenses, expected or otherwise.

We will take a look at ways you can proactively plan for and manage medical debt, to protect your credit score as well as the overall financial health of your family.

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Step 1: Get Ahead of Your Medical Debt

It can be easy to become overwhelmed by medical debt, or even just the thought of future medical debt, and fail to make a proper plan. But when you are proactive and organized, you can set yourself up to handle and manage medical debt more effectively.

There are a number of ways to get ahead of medical debt and set yourself up for financial security even when serious medical issues arise. Some ideas and tips you should start putting into practice without delay are as follows:

Step 2: Know the Ins and Outs of Your Health Insurance Policy

It’s true that most people would probably rather have a colonoscopy than read the fine print of their insurance policies as they relate to colonoscopies. Insurance is overwhelming and is often difficult for the average consumer to decipher. However, we cannot afford to be complacent when it comes to understanding our policies, what they cover, and what they don’t. Reading them may seem like the ultimate snooze-fest, but it cannot be avoided!

Whenever you sign up for a health insurance policy, be it through your employer or an individual policy you have purchased on your own, you must make every effort to understand it. Allow yourself the opportunity to speak to anyone with the insurance company who is there to provide guidance, whether in person, on the phone, or through online chats on the provider’s website. Ask as many questions as you need to understand your policy and its financial obligations.

So many Americans are lost when it comes to understanding their health insurance policies, and they may enroll in expensive packages that are beyond the scope of their needs (or inexpensive ones that do not provide enough coverage at all). Ideally, after an exhaustive review of your policy, you will have a very good idea of what your financial obligations are for most scenarios.

For example, if you require allergy shots, you will know what you are likely to spend on them throughout a year. You should understand roughly what your daughter’s contact lenses will cost on your plan and how much you should expect to pay for your spouse’s blood pressure medication. You should be aware of (and take advantage of) any tax benefits with your employer’s plan, such as a pre-tax health savings account.

And, for the catastrophic and unexpected circumstances, you should have a good idea of how hospital visits and surgeries are covered by your health insurance provider. You have the opportunity to be your own best advocate when it comes to health insurance, whether it is about choosing in-network providers, taking advantage of generic prescriptions, or lowering your rates by completing a smoking cessation program.

The bottom line is that the responsibility to do the homework falls squarely on you. It is up to you to know the ins and outs of your policy to ensure you plan for its financial implications.

Step 3: Read the Policy with a Fine-Toothed Comb

This is another area where people can be notoriously lazy, simply “trusting” that their medical bills and explanation of benefits (EOB) are accurate. You must review every detail of every bill and EOB to ensure there are no mistakes, especially mistakes that could have a negative impact on you financially.

You can and should raise questions with both your medical providers and your health insurance company any time you think you may have been billed in error for services that should have been covered.

Pay close attention to expenses attributed to your deductibles to make sure those are accurate as well. People make mistakes, and this is bound to happen on occasion with your medical bills. Catching them (and disputing them) may ultimately save you money and reduce your medical debt!

Know Before You Go!

Part of studying your health insurance policy means understanding both what services are covered as well as those that may need prior authorization from your insurance provider. When in doubt, contact the insurance company before most procedures to ask and at least create a “paper trail” on your behalf.

Whether it’s a mammogram or a routine physical, it’s a good idea to double check with your insurance company before scheduling all appointments to be absolutely certain they are covered, and to explore your options if they are not. Paying close attention to your deductible will also enable you to be strategic about non-emergency procedures.

Taking a proactive stance when it comes to your health insurance and your medical visits will ensure you are protecting your financial health as much as possible. And by extension, this means protecting your credit score!

Step 4: Pay Your Bills Every Month

This one seems like a no-brainer suggestion, but it is always worth emphasizing when it comes to medical bills or any other kind! Getting behind on bill payments is a common and pervasive problem, and one little slip-up can easily lead into months’ worth of slipping up if you are not careful. Staying organized when it comes to on-time bill paying is one of the best things you can do for your credit score.

If you are undergoing extensive medical treatments, consider creating an organization system to help you keep track of all the information pertaining to your medical visits, including a calendar that you update not only with appointments but also with bill payment dates. By keeping everything in one place – be it an old-fashioned three-ring binder or a sophisticated software app – you will make it easier to stay ahead of the game.

Step 5: Negotiate the Bill

This is where we once again emphasize the need to review all medical bills carefully for accuracy and keep an open line of communication with your medical providers. If you have concerns about how you are going to pay for a procedure, speak to your medical provider’s billing office to try to negotiate a payment plan that you can meet monthly.

While it’s true they may not honor your request; you will never know until you try! In most cases, there is some room for negotiation with medical providers, but you have to go out and seek that agreement. They aren’t exactly going to offer it up to you as a matter of course.

Medicine is business; they expect to be paid in full, on time and every time. So, unless you negotiate otherwise, you are on the hook for the bill to be paid in full. Rather than waiting and finding yourself in the unfortunate position of being unable to pay your medical bill, you can work to find a reasonable monthly amount you can meet and see if your provider will agree to it.

It’s also worth emphasizing, as you review and attempt to negotiate bills, that time is of the essence. Should you wish to dispute a charge in a scenario where you think it is the responsibility of your insurance company, contact the medical provider AND your insurance company immediately!

There is often a short window of time for these claims, and you need to act swiftly to get them resolved. Create a paper trail with your calls, e-mails, etc. and be sure to record the names of people you spoke to and the dates as well (these are additional useful details to store in your medical organization file).

Step 6: Ask for Forgiveness

Well, this one isn’t quite what it seems: we are not suggesting you call providers and say, “will you forgive me for not paying my bill?” Rather, we are suggesting something that many people do not even know is an option when it comes to medical debt. Some charities will buy your medical debt from a collections agency so that it is forgiven.

That’s right! There are indeed organizations who recognize just how burdensome the costs of health care can be, and they assist families who are struggling with overwhelming medical debt. While this wouldn’t necessarily apply to those with higher incomes who were simply inconvenienced by unexpected medical debt, it can be used in catastrophic scenarios where those with truly limited incomes have no feasible way to pay off their medical debt, short of a miracle.

Consumers in the latter scenario should take advantage of the assistance provided by such organizations, and you can read more about those organizations by clicking here.

Step 7: Make an Agreement with the Collection Agency

The words “collection agency” scare most people, and unfortunately that leaves many also afraid to try and negotiate. But the bottom line is most things in life are negotiable, and this can even pertain to collections agencies!

Just as you shouldn’t hesitate to ask your medical providers for some sort of negotiated agreement, if your bill has already been sent to collections, try your hand at negotiating there as well. Remember: you won’t know until you try!

Many people don’t realize, for example, that you could offer a collections agency a lump sum to forgive your debt in full, even if you do not pay the full amount. For example, let’s say you owe $1,000. You could offer the collections agency one lump-sum payment of $700, and they might take it and forgive the debt. It is always worth asking!

Bear in mind, however, that you have protected rights when dealing with collections agencies (for example you can insist that they not contact you at your place of work). Before you start negotiating with a collection agency, you should familiarize yourself with some essential aspects of collections, such as statutes of limitations.

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