Keeping Medical Debt Out of Collections and Off Your Credit Report

Nobody will deny that the cost of health care in this country is ridiculous, and the medical collections industry is booming as a result. To keep costs low and profits high, insurance companies require consumers to pay a copay each time they seek care. Many now also require you to pay a percentage of the bill, often 20% but sometimes more. So if a hospital stay costs $20,000, you would be responsible for $4000 of it. If you're like most Americans, $4000 is just as out of reach as $20,000. The end result? Your unpaid medical bills go into collections.

Avoid the frustration of collections

A 2010 study by the Association of Credit and Collection Professionals revealed that 29% of Americans have outstanding medical debt and over half that number – 16% – have been referred to collection agencies. (You can read this study yourself here.)

Medical collections hurt your credit just as much as regular collections, and once that negative collection hits your credit report, paying if off won't cause the credit bureaus to remove it. Like standard collection accounts, a medical collection will linger on your credit report for seven years. The best solution is to prevent your medical debt from going to collections in the first place.

Ask for a Medical Debt Payment Plan

Sure, doctors offices and hospitals would love to get payment in full up front, and they may even demand it in the hope that you'll pawn precious items, sell your car or cash in your kids' college funds so that you can pony up whatever crazy number they've come up with. Most health care providers, however, will agree to let you pay off your medical bills slowly over time.

Believe it or not, your doctor doesn't want to turn your debt over to a collection agency. Debt collectors don't offer their services free of charge, and most doctors prefer receiving payments in installments over having to pay a debt collector to step in and recover the debt.

Check Medicaid Eligibility

You may assume that you aren't eligible for Medicaid, but Medicaid isn't only for the utterly destitute. For example, the 2012 Medicaid guidelines note that, in a family of four, your household can bring in up to $23,050 and still qualify for Medicaid. Even better, Medicaid is retroactive for 90 days. Thus, if you get approved today, Medicaid will pay medical debts you incurred up to three months ago – keeping your hospital and doctor bills out of collections.

Keep in mind that the requirements for insuring solely children under Medicaid differ, and some states offer care plans for kids whose income requirements are considerably higher than standard Medicaid income limits. Check with your local Department of Human Resources for additional information.

Ask for the Insurance Company's Discount

Negotiate procedure costs beforehand.

Insurance companies don't pay the full fee that doctors and hospitals charge. For example, I recently received a bill for a test that my daughter had performed recently. The total cost of the test was over $6000, but the insurance's company's discount alleviated $4500 of that. If I didn't have insurance, the doctor would have simply sent me a bill for $6000 and I would have been none the wiser.

If you don't have insurance, a single test can set you back thousands. Talk to the doctor (not just the doctor's staff. Medical office staff have a tendency to be nasty and rude. I have no idea why.) and ask if he/she can arrange for you to pay only what an insurance company would pay. It's best to do this beforehand so that you can shop around for a doctor that will work with you to help you avoid medical collections.

Dispute Unpaid Insurance Claims

An old girlfriend of mine worked for an insurance company. Over dinner one night she told me, to my horror, that she'd been "written up" for approving to many claims. She and her co-workers had strict instructions to deny a certain number of claims, whether they were legitimate or not. Most people never complain. If you think your insurance company should have paid a claim and didn't, dispute it. Make sure to notify your doctor and ask that the fact that you are fighting the insurance company be put in your records. Many doctor's offices will hold off sending your bill to a collection agency for an extra 30-90 days if they know you are battling with the insurance company for payment.