How to protect yourself from snowballing medical credit card debt

When faced with an unexpected medical expense — $8,000, say, for tests to determine whether one has a life-threatening condition — many households turn to credit cards, and they’re likely getting charged a high interest rate.

Once you swipe, you’ve made two big mistakes. One, you paid full price when you could have very likely negotiated the medical expense down by as much as half, given a difficult financial situation. And two, you’ve agreed to pay a high interest rate to a lender disinclined to cut you any slack.

Here’s how that plays out:

• Medical debt remains the primary reason households file for bankruptcy, a recent analysis of household bankruptcies found, despite more people having health insurance than a decade ago.
• Between 2013 and 2016, medical expenses played a role in two-thirds of bankruptcies, researchers found.
• One in three households with credit card debt said the cause was medical bills, a 2019 study found.

After the bill

Put aside your urge to quickly settle up with the hospital or clinic, and put away your credit cards. Try these approaches:

Negotiate

If you can’t pay the entire bill, being able to offer up a lump sum of cash in return for a reduction in the amount due may appeal to your medical provider more than turning over your bill to a medical debt collector.

Remember, the health care industry is accustomed to negotiating — they do it with insurers all the time — and to accepting a steep discount from the list price.

Be polite but aggressive in your offer; it will potentially rescue your personal finances.

Ask for an installment plan

Even a reduced bill can still be way too big to cover with one payment. Ask if you can repay the bill with monthly payments over a year (or more).

This is increasingly common. Getting regular payments from you— an ongoing patient of the health care institution— is probably more attractive than selling your debt to a loan collector at a steep discount.

Nonprofit patient debt advocates can help, too.

Preventive steps

If you have health insurance — no matter how chintzy — and in good health currently, practice two kinds of prevention:

Take advantage of preventive care

Chances are your insurance includes a list of health screenings, tests and vaccines that you can get without owing a penny, of which many insured Americans don’t take full advantage. To the extent you can avoid illness (flu shots) or catch a problem sooner than later (blood pressure, cholesterol or various cancer screenings), that not only improves your quality of life, but may require less treatment than if you waited to seek care.

Build an out-of-pocket savings fund

A stress-reducing goal would be to know you have enough cash in a savings account to cover at least one year’s maximum out-of-pocket (OOP) cost.

Saving up thousands of dollars might take time ­— that in itself should be motivation to start saving ASAP. But keep in mind that whatever cash you have on hand is going to be a big help if you end up needing extensive care.

While millions more Americans have basic health insurance since the Affordable Care Act was passed, the cost to actually seek care covered by insurance is an increasingly large financial burden.

According to the Kaiser Family Foundation’s annual survey of employer-provided health insurance, the average deductible for single coverage has increased 111% since 2010, and the employee share of the monthly premium has increased about 40%. That’s a whole lot more than the 20% rise in inflation over that stretch.

In 2010, the typical premium and deductible costs exceeded 10% of median income in just 10 states. In 2019, the Commonwealth Fund report says premiums and deductibles ate up more than 10% of median income in 37 states.

An analysis by the Urban Institute found that in 2018 the average maximum out-of-pocket expense for an individual was $4,416. For workers with family coverage, the average maximum was $8,375, in addition to premiums paid. So, given many households don’t have even $1,000 set aside to cover unplanned expenses, getting sick or injured is often a financial gut punch.

Other options

If you’ve exhausted your negotiating leverage and borrowing efforts with the hospital or clinic, and must borrow elsewhere to pay a medical bill, consider the following:

Credit card with an introductory rate

If you have a solid credit score and are facing ongoing care needs, consider applying for a new credit card that charges no interest for an introductory period.

With a strong credit score and steady income, you may be able to get a card that doesn’t charge interest on new purchases for more than a year. That gives you a chunk of time to get it paid without mounting interest charges.

Personal loan

Banks, credit unions and online-fintech lending companies have been pushing personal loans lately, and these unsecured loans can be a decent option.

If you have a credit score of at least 720, you might be able to qualify for a three- to five-year personal loan with a fixed rate of 10% or so. That’s a lot better than 16% or more on a credit card.

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