Understanding Medical Debt: Know Your Rights and Options

Breaking Down Medical Debt

As many as 41% of adults have unpaid medical or dental bills. Another 15% state that they have recently paid off outstanding medical debt through collections agencies or credit card accounts. In total, 56% of American adults have dealt with financial instability over the last 5 years due to unavoidable hospital or doctor’s care.

People who cannot secure affordable insurance through their employers, parents, Medicaid, or Medicare have a notably higher risk of incurring medical debt. Rules about preauthorizations, medical network restrictions, and other coverage limitations can even push insured people to make complex decisions about whether and how to seek the care they need.

Who Is at Risk for Medical Debt?

Lower-income people have a higher risk of incurring medical debt. While high healthcare costs impact everyone, most ethnic groups, age demographics, genders, and races experience medical debt uniquely because of barriers to community access, education, and career opportunities.

Some key statistics include the following:

• 34% of adult men currently have unpaid healthcare bills, compared to 48% of women.
• 37% of White people owe money for medical services, compared to 50% of Hispanic and 56% of Black people.
• 62% of uninsured people have significant medical debt, whereas 42% of people with insurance coverage experience similar problems.

Income and education factor into each of these demographic inconsistencies. People who earn less than $40,000 a year have the highest medical debt rates (57%), whereas only 25% of people with incomes over $90,000 owe money to healthcare collections. Similarly, nearly half of all people lacking a higher education have medical debt compared to 31% of college graduates.

How to Know If You Have Medical Debt

If you have medical debt, you will likely hear from a third-party debt collector contracted by your hospital or physician’s office. However, some people may not know the full extent of their dues or even forget about services received years ago.

Regularly check your Equifax, Transunion, and Experian credit reports to know where you stand financially. You can do this for free once every week without incurring significant fees or penalties. Remember that credit statements should not reveal any medical debts that are below $500, less than a year old, or paid off. If you find discrepancies, dispute them with the reporting agency to prompt an investigation.

Common Terms to Know 

Coverage Terms 

• Out-of-pocket maximum: The out-of-pocket maximum is an annual limit that a policyholder must pay for covered services before their insurance carrier pays for 100% of the remaining costs.
• In-network: Doctors and hospitals that are in network are those that are contracted and approved by your insurance carrier.
• Out-of-network: Doctor and hospital care received out of network, or outside your insurer’s jurisdiction, often results in higher costs or denied coverage.
• Explanation of benefits (EOB): An explanation of benefits is a statement from your insurer detailing how they will or have covered required medical services.
• Denial of coverage: A denial of coverage is when an insurance company refuses to pay for specific medical procedures, tests, or prescriptions.
• Medically necessary: Doctors can label something as medically necessary, which is an official verification that a procedure meets accepted standards of medicine and is essential in diagnosing or treating an illness or injury.

Billing Terms 

• Balance billing: A healthcare provider may practice balance billing, a process where a patient is billed for the difference between what the patient’s insurance company pays for a service and what the provider charges for that service.
• Underinsured: A person is underinsured if they have insufficient health insurance to fulfill a claim.
• Uninsured: A person is uninsured when they are lacking health insurance altogether.
• Collections agency: A collections agency is a third-party company that pursues debt payments on behalf of a creditor, such as a doctor or hospital.
• Debt consolidation: One type of debt refinancing strategy is debt consolidation, which uses one large loan to pay off multiple smaller ones.
• Bankruptcy: A person with insurmountable debt can declare bankruptcy to liquidate their assets at the expense of their credit score and financial future.
• Credit report: A credit report is an official statement of your credit history and current accounts.
• Patient advocacy: Professionals help patients navigate the complicated inner workings of the healthcare system through patient advocacy.

Understanding Your Coverage

Every insurance company sets unique cost-sharing protocols and sells multiple policy types, such as HMOs and PPOs. Each policy has its own rules about out-of-network care, specific medications, and non-medically necessary or non-referred services.

For example, even if your insurance plan covers a medical procedure, it may not approve lab fees and diagnostic tests. In fact, lab fees, tests, and other out-of-network charges account for 59% of all medical debt.

A large portion of healthcare debt stems from emergency procedures. Though all ACA health insurance plans must pay for emergency room services, many charge a higher initial copayment. The criteria for emergency care coverage may also vary based on insurer and individual policy, meaning there may be nuanced coverage restrictions to consider.

How to Read Your Coverage Terms

Even before you need to seek care, familiarize yourself with your policy’s coverage terms. Check over the following:

1. Check over your network. Look over your plan’s network of doctors, specialists, facilities, and pharmacies to ensure your preferred healthcare providers are within the network.
2. List out specific services you need. Preventive care is generally covered in ACA-compliant health insurance plans, but understanding how specific procedures, tests, and treatments are covered can help you avoid unexpected costs. Read the fine print or speak with your insurer for more details.
3. Note when pre-authorization and referrals are needed. Learn when your insurer requires pre-authorization or referrals for covered care. Pre-authorization is when your insurance company must sign off on a procedure before it takes place for coverage, and referrals are when your primary care physician must coordinate your follow-up with a specialist.

Preventing Future Medical Debt

While preparation cannot always prevent medical debt, try the following strategies to avoid it where possible:

• Review your insurance coverage. Understanding what’s covered, the cost of procedures and tests, and available alternatives will help reduce out-of-pocket expenses.
• Keep detailed records. Organize all billing documents and EOBs to support future disputes and legal cases.
• Review medical bills carefully. Request itemized bills and demand an explanation for suspicious charges.
• Negotiate your bill. Many patients can secure discounts by paying bills upfront or with cash. Other hospitals offer payment plans that charge little or no interest.
• Act quickly to dispute charges. Waiting too long to pay, dispute, or negotiate a bill will result in it going to collections and negatively impact your credit score.
• Seek financial assistance. Ask about charity programs before or immediately after receiving care to ensure compliance with enrollment deadlines. Take advantage of payment plans. For example, look into low-interest hospital payment plans instead of using standard credit cards to pay for care. These plans impact your loan eligibility and credit score to a lesser degree.