Of the 100 million adults with medical debt, 12% of them owe at least $10,000.1 From the COVID-19 pandemic to health insurance complexities, there are many factors that led to the debt landscape Americans face today. Use this guide to familiarize yourself with these factors and discover steps to rebound from your medical debt – and potentially lower the amount you owe.
A bitter pill to swallow
The COVID-19 pandemic is a health event that impacted Americans in virtually every facet of their lives – including their financial well-being. One survey conducted by Affordable Health Insurance found that over half of responders’ health-related debt stemmed from COVID-19 treatments and testing.2
Severe cases of the virus packed the biggest financial punch. Individuals who contracted COVID-19 and required hospitalization for their symptoms stayed at the hospital a median of six days at a cost of $11,267 – slightly less than patients who required treatment in the intensive care unit.3 While insurance likely helped cover a sizeable portion of this for many of those affected, job loss complicated this option for many. By June 2020, 7.7 million workers lost their employer-sponsored insurance as a direct result of the pandemic.4 It’s estimated that a third became uninsured, while the rest obtained coverage through a family member’s insurance or programs like Medicaid. Regardless, it left many Americans reeling with uncertainty as they contemplated how they would cover expenses.
Those who did not lose their job or employer-sponsored health insurance may have experienced income loss that left them with less money to pay toward medical bills. According to a Commonwealth Fund survey, a third of U.S. adults said their income fell during the pandemic.5 This may have required them to restructure their budget or let it go into the red.
Medical debt is not an issue unique to the pandemic era. Unfortunately, it’s something Americans have been grappling with for some time. This issue has roots in many areas, one being the state of health insurance in the U.S. Though uninsured Americans are more likely to have trouble paying medical bills, 62% of people covered by health insurance report the same problem. Of this group, three in ten received care from an out-of-network provider – and didn’t realize it until they were hit with the bill later.6 Thankfully, the No Surprise Act addressed this portion of the medical debt conundrum. In effect as of January 2022, the act ensures you won’t get dinged with a surprise bill for out-of-network services without prior authorization.7
But medical debt is a complex puzzle that can’t be solved by eliminating surprise bills alone. The financial burden of cost-sharing – which is the share your insurance pays vs. what you pay out of pocket – and the cost of services are also part of the conversation.
The impact, under a microscope
While some connections between medical debt and financial well-being are more obvious, others aren’t. One you may not have considered is the impact on borrowing power. When you don’t pay a medical bill, the provider may send it to collections after a certain amount of time has passed. This debt will stay on your credit report for seven years. In the past, this was the case even if you eventually paid it off. But an effort from the three main credit bureaus, TransUnion®, Equifax®, and Experian™, changed that.
As of July 2022, these credit bureaus will wipe medical debt previously in collections from credit reports. This means any medical debt that hit collections but was eventually paid will no longer negatively impact your credit score. This wipes out an estimated 70% of negative medical debt remarks.8
Unfortunately, this won’t help individuals with unpaid medical debt. For them, the negative remark will remain and continue to narrow the credit options available to them. As a result, financing a home or car or applying for a credit card may come with less favorable rates and terms.
Ironically, medical debt can actually be harmful to your health.9 This is due to the stress of having to pay it back and the psychological issues, like depression and anxiety, that may develop as a result. Not only can chronic stress cause high blood pressure, but it can even suppress your immune system and leave you more susceptible to illness as a result.
The cost of healthcare may also encourage you to skip doctor appointments altogether. While this can be tempting, proactive or preventative care can be more affordable in the long run compared to reactive care. When possible, try to make it to those annual appointments.
3. Personal sacrifice
People with medical debt report trimming their budgets in categories like food, household items, and clothing.6 These tighter purse strings may affect their quality of life or standard of living. Not only this, but they may have to use their existing savings or redirect on-going saving efforts to satisfy a debt. This may put goals like homeownership or a higher education out of reach, at least temporarily.
If you’ve noticed your medical debt affecting your standard of living or your ability to save, use an online debt calculator to set a payoff strategy – and determine how you may be able to fit saving into your budget.
Breaking free of medical debt is something many Americans aspire to do. Accomplishing this yourself is a matter of strategizing, educating yourself, and leaning on your resources. First, it’s important to verify what you actually owe. Billing mistakes happen, so due diligence – in this case, in the form of a call to your insurance provider – pays. Especially when an estimated 80% of bills contain an error.10
Once you confirm the amount you owe is correct, there are several courses of action you can take:
- Negotiate your bill for a lower amount. Non-profit hospitals have to offer financial assistance to lower-income patients. This assistance could reduce your balance partially or fully depending on your eligibility.
- Ask for a repayment plan. Medical providers want to get paid, so they’ll often work with you if you ask for a repayment plan.
General Electric Credit Union (GECU) members like you have access to a wealth of resources to streamline medical debt payoff. Online debt calculators will help you determine a long-term payment strategy, our Money Management dashboard gives you a holistic view of your budget alongside your debt obligations, and our Debt Management Assistance program provides the support and guidance you need to stay afloat. For future expenses, consider opening a Health Savings Account (HSA). You can save for medical costs on a pre-tax basis and use a debit card to access those funds when needed. The best part? A GECU HSA has no monthly fees or account minimum!