If you are one of the millions of people who are struggling to pay medical bills, you should be aware of the steps you can take to reduce or manage your debt. If you owe money to a hospital or medical provider, do not ignore your bills. It will be harder to straighten out billing mistakes or get financial assistance if you wait. Making timely payments will also help you avoid further debt, damage to your credit score, lawsuits, and “garnishment” (deductions from your wages or bank account). But, if you cannot pay anything right now, you may be able to get financial assistance, and you should see if your provider will agree to wait before charging interest or sending your debt to a collection agency.
Step 1: First Things First
Make sure the charges are correct.
Look at the bill to see if you really got all the services for which you are charged. If not, talk to the medical provider and ask to have the bill corrected. If you think there may be errors, you can get an itemized copy of your bill. You can also get a copy of your medical records to see if you got the services for which you are being charged. For example, sometimes items or services are mistakenly billed more than once, even if you did not receive them more than once.
Make sure your insurance has paid what it should.
If you have Medicaid, Medicare, or other insurance, make sure the hospital or medical provider sent your bill to the insurer with your correct Medicaid or insurance policy number. Correcting simple mistakes quickly may save you from ending up with debt.
Also, look at the notice your insurance company sends you, called an “Explanation of Benefits.” If the insurer refused payment for anything, look for the reason, which may be listed on the bottom or back of the notice or in small print. (Call your insurance company if you can’t find the reason or can’t understand it.) You may be able to appeal.
Finally, if you have Medicaid, your provider should only bill you for small copayments. If you are being charged more, talk to your state Medicaid agency.
Check your appeal rights.
The explanation of benefits notice should tell you a little about your appeal rights. Besides asking the plan to review its decision, you may be able to appeal to someone who is independent of the health plan (sometimes called an “external appeal”). Your state insurance department can tell you if you have a right to an independent, external appeal.
Step 2: If You Can’t Afford to Pay
Find out if you are eligible for Medicaid or other coverage that can pay your back bills.
Generally, seniors, people with disabilities, children, and parents of dependent children may be eligible for Medicaid if they have very low incomes. In many states, the Medicaid agency will also take large medical bills into account when determining eligibility. Medicaid can often go back and pay bills that are up to three months old. Check with your state Medicaid agency to see how this works in your state and what steps you need to take to apply. If your state or county offers other health coverage programs for low-income people who cannot get Medicaid, also ask if those programs will pay any back bills.
If you recently lost a job that provided health insurance, see if you can still sign up for COBRA. If you pay COBRA premiums back to the date you lost your coverage, it can pay medical bills back to that time. Notices that you get from your employer or health plan should tell you the deadline for signing up for COBRA.
Find out if you can get financial assistance from the hospital or medical provider or from another source.
Many hospitals in the United States provide some free or low-cost care, sometimes referred to as “charity care,” to uninsured or low-income people who cannot otherwise afford to pay their bills. Other medical providers, such as clinics, doctors, dentists, and home health agencies, may also have financial assistance programs. Some states have laws requiring that certain hospitals provide free or low-cost care and that they post the guidelines concerning who is eligible and how to apply. Even if your state doesn’t have a specific requirement, hospitals—especially nonprofit hospitals and hospitals that serve a large proportion of low-income patients—may receive federal money or tax breaks that obligate them to provide some charity care.
How can you find out if providers have a financial assistance program? First, ask your provider. Hospitals may have notices posted, or you can ask a hospital financial counselor or the manager of patient accounts in the billing office. Note: It is important to keep records of everyone you talk with and the information they provide in case you have follow-up questions or need proof of the actions you’ve taken and what you’ve been told.
Even if you get help with the hospital bill, you might still owe money to doctors and other providers that saw you when you were in the hospital. When you get bills from these other providers, you can also talk to them about whether they will reduce their bills, give you charity care, or allow you to pay over time without interest.
Check with the hospital billing or financial office. See if you can get free or low-cost care, and ask if the hospital will “write off,” “forgive,” or cancel some of your bill. If they agree to write off your bill, ask to get the agreement in writing. Be sure to follow up to make sure the bill is not on your credit report. You can also talk to a legal services program or consumer health assistance program in your community about whether you have rights to free or low-cost care.
Some foundations provide financial assistance to people with specific diseases, and other disease-specific organizations, such as the American Cancer Society or the American Heart Association, can help with referrals.
Try to negotiate with the hospital or other medical providers.
You may find that your providers are willing to reduce their fees. They may also agree to let you pay over time. If you succeed in negotiating reduced bills and/or a time extension, be sure to get the agreement in writing and keep records documenting these agreements. Also, tell other providers that treated you—sometimes the fact that a hospital offered you free or low-cost care will encourage your other providers to assist you as well.
Often, uninsured people are actually charged more for services than people with insurance because insurance companies have negotiated lower or discounted rates for their members. However, it may be possible to persuade your provider to grant you a discount for your visit. For instance, instead of paying $100 for an office visit, you may be able to pay $60. You may have to complete paperwork to qualify for a reduced rate. A few states, such as California, Connecticut, Illinois, Maryland, and New York, limit the amount that hospitals or other providers can charge and collect from uninsured patients.
You may also be able to set up a payment plan with your provider. It is important to agree on a payment plan with your provider, because if you just pay part of your bill without making an agreement, your bill may still be sent to a collector. You should agree to pay what you can—but no more. If you cannot pay anything now, you should explain to them that you’ll pay as soon as you can and ask them not to send your case to a collection agency. Try to avoid signing a payment plan that says you agree to pay the entire amount due as a penalty if you miss a payment (this is called an “acceleration clause”).
Step 3: Be Careful How You Pay
Create a list of other debts and bills (mortgage, auto, utilities, taxes, child support, etc.) and figure out which to pay first.
Child support and income tax debts are an especially high priority because failing to pay them can result in serious federal punishments.
Don’t ignore any of your bills when you are in financial trouble—if you do, you risk falling deeper into debt. It is important, however, to set priorities for which bills to pay immediately. Mortgage or rent payments are also a high priority because you can lose your home if you do not pay.
While you may not be able to pay your medical bills right away, you should make timely payments on higher priority debts, and talk to your medical providers about when you expect to be able to make payments on your medical debt. Do not move medical debt to a higher priority than other basic necessities—even if a collector threatens a lawsuit or threatens to report your debt to credit bureaus.
Try not to use credit cards to pay medical bills: Credit cards tend to carry high interest rates and harsh penalties for late payments.
When you receive a credit card bill, you are not required to pay the full amount. However, if you pay only the minimum amount required, you will be charged interest on the remaining balance. The interest rates are high, and the amount you owe will pile up over time. Also, if you do not pay your credit card bill on time, late fees will be added onto the total amount. Therefore, you should pay bills with checks or cash whenever you can. You may be able to work out a payment plan with your provider that does not have the high interest and late fees of a credit card.
Some medical providers offer special “medical credit cards” to patients who cannot pay their medical bills all at once. These often have all the same problems as other credit cards, including high interest rates and late penalties. Or the cards may be interest-free at first, but if you miss a payment, high interest rates begin. Make sure you understand the terms of any medical credit card that is offered to you, and see if you can avoid putting your debt on a credit card by exploring the other alternatives in this guide.
Do not turn “unsecured debt,” like medical debt, into “secured debt” by taking out a second mortgage, for instance.
Taking out a second mortgage on your home may seem like a good idea at first, especially if doing so lets you lower your interest rate. In reality, this may cause you more financial trouble down the road. Medical debt is “unsecured,” meaning that no assets are used as collateral for the debt. However, once you take out a second mortgage (also called a home equity loan) to pay for your medical debt, your medical debt becomes “secured” debt. With secured debt, you are now using an asset (in this case, the equity in your home) as collateral. If you are unable to pay off the debt, the creditor can take possession of the asset as payment. In other words, you could easily lose your home. Before deciding to take out a second mortgage, you should weigh the consequences of turning unsecured debt into secured debt.
Step 4: If You Fall Deeply into Debt
Weigh the pros and cons before filing for bankruptcy.
Filing for bankruptcy is a big step. You should get expert advice from a legal services program or a reputable consumer credit counseling program and then weigh all of your options before filing. In some cases, bankruptcy may turn out to be your best option for dealing with medical debt.
Consumers file for bankruptcy either to eliminate their debts completely or to develop a plan to repay them. If you are in danger of having your wages garnished or your property seized, filing for bankruptcy may help, but you may have other, better options. If you don’t have property or much income, bankruptcy may not even be necessary or helpful because you may be considered “judgment proof” (see page 13). (However, if your income increases later, you will need to revisit your options.)
There are two major types of bankruptcy for individuals: Chapter 7 and Chapter 13. (Other chapters apply to members of the military, family farmers, and fishermen.)
Under Chapter 7 bankruptcy, the court erases almost all of your debts. However, even though you have cleared up your debts, you may have to sell some of your property and assets to reimburse creditors. There are state and federal rules about what property you can keep.
Chapter 13 bankruptcy is designed for individuals with stable incomes who expect to be able to repay all their debts eventually. Chapter 13 lets these individuals establish loan repayment plans. It will usually protect them from wage garnishments or lawsuits that are initiated by creditors.
In both kinds of bankruptcy, a trustee makes sure you keep your agreement.
Filing for bankruptcy under either chapter may damage your credit score, but unpaid debt can damage your credit even if you don’t file for bankruptcy. People rely on having good credit scores to get approved for apartments, mortgages, car loans, and credit cards—or to get reasonable rates on insurance policies. Once consumers have filed for bankruptcy, their bankruptcy status remains on their credit report for up to 10 years. By law, before filing for bankruptcy in court, you must seek help from a consumer credit counseling service to determine your best options for managing your debt. Keep in mind that bankruptcy will dismiss only debt that you have at the time you declare bankruptcy, not debt that comes later. Since you will not be able to file for bankruptcy again for several years, if you are facing ongoing financial problems and expect more major medical expenses, you may want to wait.
Protect yourself if you are sued.
If you are sued, there are a few important steps you should take:
Keep your court date.
Try to get legal help.
Let the court know if there were any mistakes in your bill or if you think you were charged too high a price.
Let the court know what your expenses are and see if you are exempt from wage garnishment or other collection items.
Generally, you must provide the court and the people suing you with your “answer,” explaining any defenses or excuses for the debt, before your court date.
How much time you have to respond to a notice of a lawsuit: Generally, you have anywhere from 15 to 40 days to respond to a lawsuit and indicate your intention to defend your case, depending on where you live. The notice should explain your deadlines. If you receive notice of a lawsuit against you, do not ignore it. Try to get legal advice. Even if you cannot find legal help, keep your court date and ask the clerk when you get to court what you should do. Tell the court if you think the debt is wrong or if you want to work out a payment arrangement that takes into consideration what you can and cannot afford. Also, remember to bring documentation of your expenses.
Understanding Your Rights
Be aware of your rights. There are both federal and state laws that protect consumers in these circumstances. This section of the guide discusses some of the basic protections available to you, answers some questions you may have, and tells you where to turn if you believe your rights are being violated.
The federal Fair Debt Collection Practices Act protects you from harassment.
Under the law, bill collectors cannot:
Contact you at work if you tell them not to or if your employer disapproves of the calls. Bill collectors also cannot contact you before 8:00 am or after 9:00 pm.
Tell your friends, relatives, or coworkers about your medical debt. Bill collectors can ask other people for your contact information, but they generally cannot contact them more than once.
Harass you, make threats of violence or harm, use obscene language, or publish your name in a list of people who owe debt.
Make false statements concerning your debt, such as threatening to file a lawsuit when they have no intention of doing so.
Contact you after you have sent a written letter informing them to stop contacting you. Sending such a letter should stop bill collectors from contacting you, but it does not make your debt go away, nor does it prevent the collector from suing you.
Threaten you with arrest, wage garnishment, or property seizure unless your state’s laws allow them to take those steps and they intend to do so.
Bill collectors must provide you with a written “validation notice” that explains how much you owe within five days after they first contact you. The notice must include the name of the creditor to whom you owe the money.
Unfair and Deceptive Acts and Practices (UDAP) statutes guard against medical providers and collectors intentionally deceiving you.
If you believe your medical provider has acted unfairly or deceptively, you may be protected under your state’s Unfair and Deceptive Acts and Practices (UDAP) statute. Each state and the District of Columbia have a UDAP statute to protect consumers against fraud, scams, and abuse.
The federal Truth in Lending Act gives you the right to know the details of your payment plan.
If you set up a payment plan, you have a right to know the details, such as any interest or late fees that apply and what will happen if you miss a payment.
The federal Truth in Lending Act gives you these rights if:
you were given the option to defer paying your debt;
you set up a plan for paying the debt in more than four payments or you were charged interest; and
the provider or hospital (the creditor) regularly extends credit.
HIPAA and the Fair Credit Reporting Act ensure your privacy.
You have certain rights to privacy under the Health Insurance Portability and Accountability Act, or HIPAA. HIPAA requires that medical providers, bill collectors, and credit bureaus keep your medical information private. Also, if you discover that a credit bureau has revealed information about your medical records in a credit report to another party, you may have a case under the Fair Credit Reporting Act (FCRA). Credit bureaus must protect your medical privacy, and they cannot issue a credit report containing medical information to employers. Credit bureaus also cannot include contact information for your medical providers or insurance companies in a credit report.
Other laws in your state may help protect you.
In addition to the federal protections mentioned above, you may have additional fair debt collection protections under your state’s law. Also, keep in mind that most debt collection laws and regulations vary by state, and medical providers generally do not inform patients about all possible actions they may legally take to collect your debt.
What Else You Need to Know
Can medical debt be transferred to a third party collector?
Yes, in moststates, your medical provider may hire a collection agency to pursue the bill; or the provider may sell your debt to a collector, who will then become the owner of the debt and keep any money they collect. It is important that you know to whom you should pay your debts and whether or not your debt can be transferred from your provider to a collection agency or a third party medical debt buyer. It may be harder for you to resolve a debt once it is transferred.
Not all collection agencies or debt buyers are familiar with eligibility guidelines for hospital charity care policies or public coverage programs. In addition, they may attempt to collect more aggressively on your debt than hospitals, and unfortunately, only a few states require hospitals to monitor them closely or review their practices. (To prevent these problems, a new Maryland law prohibits Maryland hospitals from selling medical debt, and other states may pass similar laws in the future. You can ask your state legislators if they are considering any new laws about medical debt.)
Does your state limit how quickly hospitals or other medical providers can turn over debt to a third party collector or debt buyer? What are your hospital’s own policies?
Some states, such as California, prohibit hospitals from sending bills to collections while a patient is applying for hospital financial assistance or Medicaid. Some states give patients a few months to work out payment arrangements before they allow hospitals to turn over bills to third party collectors. And some states prohibit a medical provider from trying to collect from the patient when it is really an insurance company that is supposed to pay a bill.
You should learn about your hospital’s policies for sending bills to collections and screening patients to determine eligibility for charity care or public health coverage.
Ask your provider’s billing or finance department how much time you have to work out arrangements before your debt is sent to collection. If the bill should have been covered by Medicaid or other health insurance, contact your medical provider, the insurance company, and—if the bill has already gone to collection—the collection agency to resolve this problem. Also, check with legal services in your community to see if your state has additional protections.
What is the allowable interest rate on medical debt?
The interest rate that is charged on medical debt varies from state to state. Moreover, the rate can change if there is a legal judgment against you for repaying the debt or if you have agreed to a higher rate in writing. Some states prohibit creditors from raising interest rates beyond what was agreed to in the original payment plan. Others require providers to arrange low-interest or no-interest payment plans for low-income consumers. Whenever possible, you should try to negotiate a payment plan that is low-interest or interest-free. Note that some medical providers may offer you a credit card or a loan to repay your bills. In general, you should avoid agreeing to these arrangements because they often carry high interest rates or penalties if you make a late payment. Most states have limits on the amount of interest that can be charged on consumer debt, but unscrupulous collectors may try to charge more.
When can medical providers report your medical debt to a credit bureau?
In many states, even while you are making payments on your medical debt, providers and collection agencies can report information about your debt to a credit bureau. This practice could damage your credit score.
You should ask your medical provider or hospital if they have reported your medical debt to a credit bureau, and if so, ask about the conditions for reporting debt (if you miss a payment, etc.). In California, for example, hospitals cannot report negative information about a patient’s medical debt within the first 150 days of sending the patient the first bill.
Can a collector take money from your wages or bank account to pay your medical debt?
Depending on your income and your assets, collectors may be able to deduct a portion of your wages or bank account to repay debt. This is known as garnishment or an attachment. If your income and assets are very low, however, or if your income comes primarily from federal benefits such as Social Security or Supplemental Security Income (SSI), you may be “judgment proof,” meaning that collectors cannot force you to pay.
If they do take money from your bank account or wages, how does this happen?
In a few states, your bank account can be taken even if the collector has not filed a lawsuit or obtained consent from a judge. In most states, however, there must be a court order before your wages or bank account can be garnished.
If your wages are garnished, how much can they take?
There is a federal limit to wage garnishment under the Consumer Credit Protection Act, which uses a complicated formula to determine the amount of your income that can be garnished. This formula adds up your income and subtracts certain deductions, such as federal, state, and local taxes. Note, however, that many federal benefits, including Social Security and Supplemental Security Income (SSI) benefits, are exempt from garnishment—that is, they cannot be counted when determining your income, and they cannot be taken away.
The amount left after adding up your income and subtracting your deductions is your “disposable income.” Generally, on a weekly basis, you are allowed to keep three-quarters of your disposable income or the federal minimum hourly wage times 30 hours, whichever is higher.
To illustrate, in 2009, the minimum wage is $7.25, and 30 times the minimum wage is $217.50. So, you must be allowed to keep up to $217.50 of weekly disposable income (after taxes are deducted and not including any Social Security, SSI, veterans benefits, or unemployment income), or ¾ of your earnings after making these deductions, whichever is higher. So if your earnings are less than $217.50 per week, or your income is all from public benefits like Social Security, your wages cannot be garnished.
In addition, your state may have a law that allows you to keep even more of your income and assets. Contact free legal services or a consumer attorney to learn about the laws in your state. Your state’s banking, finance, or labor department may also be able to tell you.
Are you “judgment proof,” meaning they can’t force you to pay?
If your income is very low and you don’t have many assets, you may be “judgment proof.” This means that, even if they sue you and get a judgment against you, providers or collectors cannot garnish your wages or force you to pay because all of your income and property are protected by law. See “If your wages are garnished, how much can they take?” on page 13 for information about what income is protected under federal law. In some states, additional income and the house that you live in are also protected under state laws.
You can write a letter to debt collectors explaining that you are judgment proof to stop them from contacting you. This may help you temporarily, but it will not make your debt go away. In fact, if your income or assets increase, you may no longer be judgment proof, and providers and collectors may try to collect on your debt.
How long can medical debt last?
States have laws that limit the amount of time that creditors or collectors can bring legal action against you to collect on your debt; the time ranges from two to 20 years. In some states, after a period of time, a collector can go to court to renew a judgment against you and collect a debt. You will get a notice about this and should again go to court to explain your situation. In some states, when the time to take legal action against you expires, your debt goes away. In other states, your debt remains, even though you cannot be sued. The Fair Credit Reporting Act limits the amount of time a debt can be reported to a credit bureau to seven years after either the date you incurred the debt or the date you stopped making payments, but collectors may still contact you after that time to try to get a payment.
What can you do if you think your rights have been violated?
Statewide agencies such as Attorney General offices and Division of Consumer Affairs offices have procedures for filing complaints against other parties. You should check with the appropriate department to learn how to file a complaint.
In some cases, you may also be able to sue in court, but remember that this can be expensive, lengthy, and complicated, so consult with a lawyer about all of your options.
If you feel that you are being treated unfairly by a third party collector, contact your provider and see if they are still involved with the collector, and contact your state Attorney General and the Federal Trade Commission for help.