Managing Medical Expenses: How To Prevent Medical Bills From Ruining Your Credit

Managing Medical Expenses: How To Prevent Medical Bills From Ruining Your Credit
February 25 01:00 2015

Managing Medical Expenses: How To Prevent Medical Bills From Ruining Your Credit

A recent Bankrate poll illustrated that 23 percent of those surveyed fear running out of money after retirement. Twenty-eight percent of all surveyed stated that medical expenses in particular will deplete their savings into retirement. While the numbers are close, the disparity makes it clear that medical costs weigh heavily on the mind.

And for good reason.

A 2014 Consumer Financial Protection Bureau (CFPB) survey found that 20 percent of U.S. consumers have overdue medical bills on their credit reports, and a whopping third of these individuals have only health-related expenses damaging their credit. The report claims that with these estimates, 15 million individuals fall into this category.

“It’s hard for consumers to navigate the medical debt maze and come out with a clean credit report on the other side,” CFPB Director Richard Cordray stated. “Getting medical care should not make your credit report sick.”

Steps To Keep Medical Expenses In Check

1. Be Your Own Health Advocate.

Donning personal responsibility for your individual and family health is essential. Maintaining a healthy lifestyle will combat many unnecessary medical costs and thwart them before they can diminish emergency funds. Go to your annual physicals and annual dental appointments, eat healthy, exercise and protect yourself against communicable diseases.

The best insurance is self-directed care for your own well-being. By eliminating erroneous doctor visits, hospital stays and prescription costs, medical bills will inevitably be less steep.

2. Be Financially Prepared.

“It’s difficult to predict financial emergencies, which is why you need to be prepared,” says Investopedia’s Stephanie Barton.

The simplest way to be prepared for these financial emergencies is to have savings set aside specifically for unplanned financial expenses.

LearnVest’s Marisa Torrieri takes the advice one step further by recommending a savings fund separate from your emergency fund, dedicated entirely to unexpected medical costs.

3. Take Advantage Of Insurance Offerings.

Ideally, everyone would be covered by a phenomenal medical insurance plan that takes care of expenses and pays providers efficiently. Unfortunately, medical insurance – when available – often comes with sky-high premiums and alpine deductibles.

The Kaiser Family Foundation recently reported that employer-sponsored health plan premiums have increased by 26 percent since 2009, coupled with the average deductible hike of 47 percent.

Despite the colossal out-of-pocket expenses incurred even with insurance, the alternative of not having insurance can be financial suicide.

Therefore, the next step in maintaining a healthy medical-financial history is to take advantage of insurance available.

4. Get An Advanced Estimate.

While it may be impossible to predict the exact bottom line of a medical bill before the service is rendered and insurance responds, medical providers, their billing offices, insurance companies and pharmacies can disclose payment schedules for typical procedures, appointments and prescriptions.

Being aware that different entities can follow different expense schedules and knowing ahead of time can help you prepare for expenses and avoid unnecessary differences in charges. Price shopping pharmacies can save vast amounts of cash on a regular basis, but the same principle can apply to other medical expenses.

Keep in mind, however, that higher costs are not always associated with better care, but the correlation might be applicable. Take the time to research your medical practitioner to ensure their competitive prices are skewed proportionally to the care you deserve.

5. Understand Your Statement.

Billing mistakes happen. Therefore, it is important to request an itemized statement of the medical bill if one is not provided.

Patients have a right to request this documentation and providers are obligated to disclose the line items on invoices and explain the expenses in layman’s terms.

Billing mistakes will not be caught or corrected unless addressed by the patient; take ownership over the statement and make sure you are only paying for services actually rendered.

6. Communicate And Negotiate.

Medical providers, billing companies and collection agencies do not know your personal financial situation. Therefore, if you need to set up a payment plan, you must reach out to them. Without your contact, the institutes will assume payment can be rendered immediately and completely.

Without calling to disclose your concerns regarding immediate payment, your account could incur interest rates that otherwise would have not been imposed had the billing agencies been informed of your inability to pay in full.

7. Automatic Payments.

Avoid forgetting or missing a due date on a medical payment plan by scheduling an automatic withdrawal from your account.

Two Warnings

While these steps can help avoid being caught unaware by medical bills, they are not fool proof. A word of warning: once medical bills begin to drown a healthy credit, desperate and drastic measures can become quite appealing.

Beware Of Paying With Plastic

“Holding credit card debt rather than medical debt could hinder your ability to get financial assistance if you run into trouble paying your bills,” says Investopedia’s Stephanie Barton. “When you convert medical expenses into credit card debt, the expense becomes consumer debt and you are then subject to associated penalties and fees.”

CFPB advises, “Don’t put medical bills on your credit card if you can’t pay it. If you can’t immediately pay off a high debt on your credit card bill, you will be charged high interest, and it will look like regular debt to other creditors.”

Beware Of Home Equity Loans

“Borrowing against the equity of your home can mean a monthly payment that may be much higher than your original medical bill,” Barton continues. “It can also mean a high interest payment and you may have to pay points, both of which fuel more debt.”

The biggest thing to understand is that when medical bills end up in collections or caught up in credit card debt, they damage credit more than necessary. A 2014 Consumer Financial Protection Bureau report illustrated this point by showing that individuals subjected to medical collections handled typical debt differently and the damages to their credit were not indicative of typical creditworthiness, with these individuals typically paying other obligations on par with individuals who had a credit score 10 points higher.

Liz Weston from commented on the report by stating that “those who paid off their medical collections should have received scores 16 to 22 points higher on average.”

By following these steps and avoiding money traps, unplanned medical expenses do not need to be a death sentence for your financial security now or later down the road.

This article is part of an ongoing collaborative project between NASDAQ Contributor and Benzinga Managing Editor Joe Young and Benzinga Personal Finance Writer Rebecca Sheppard.

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