Can You Settle Medical Debt?

Can You Settle Medical Debt?

You may be able to settle a medical bill for less than the full amount owed, though negotiating a settlement isn't guaranteed. The party you negotiate with will depend on where you are in the billing and collection process: You may work out a settlement with your original health care provider, a debt collector or a debt buyer. In some cases, the provider or collection company will propose a settlement; in others, you make a settlement offer based on what you're able to pay.

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How Much Can Medical Debt Be Settled For?

Medical debt settlement can reduce your bill by 10% up to 80% or more, depending on a variety of factors. Though there aren't hard-and-fast rules for calculating settlement amounts—and no requirements for providers to agree to settle at all—providers are generally open to working with patients on payment issues. Most would rather connect patients with financial assistance, payment plans or payment-in-full discounts than send accounts to collections or see medical debts discharged in bankruptcy.

Is It Better to Settle Medical Debt or Pay in Full?

Paying your medical debt in full may be simpler, but settling for less than your original bill is an important option when you can't pay upfront or when you believe you're being overcharged. Here are the upsides and downsides to keep in mind when considering medical debt settlement.

When It May Be Better to Settle

• You're unable to pay the full debt. If you don't have the income or funds to cover your full bill, discuss your concerns with your provider as soon as possible. The sooner you engage with your provider, the better your chances of avoiding collections and working out a satisfactory payment arrangement.
• You dispute the amount you're being charged. You shouldn't pay for services you didn't receive or charges that should have been covered by your insurance. You have the right to review your bill and resolve issues with your provider and insurance company.
• You want to avoid having the debt sent to collections. Settling your medical debt while the provider still holds it may allow you to bypass collections—and any potential consequences to your credit.

When It May Be Better to Pay in Full

• You have the resources to pay the full bill. If hardship isn't a factor, paying your full debt resolves the issue immediately so you can move on with your life.
• You're confident the charges are valid. You don't want to pay for expenses your insurance should have covered or medical treatment you didn't receive. But if you've reviewed your bill and explanation of benefits (EOB) statements and feel comfortable that the charges are accurate, you can pay the bill without disputing it.
• You want to avoid any risk to your credit. Although credit reporting agencies have agreed not to report medical debt in collections for up to a full year, paying your bill completely before the year is up (or, even better, before it's sent to collections) lets you avoid this issue entirely.

How to Settle Medical Debt

If you want to pay off your medical debt at a reduced rate, follow these steps to try to lower your medical bill and/or settle your outstanding medical debt.

1. Find Out Who Owns the Debt

Depending on timing, your debt may belong to your provider or may have been sold to a collection agency or debt buyer.

• If your provider owns the debt, you still have the opportunity to keep your debt out of collections. You may be able to access financial assistance programs or negotiate a discount for paying in full.
• If your debt has been sold to a third party, you may have negotiating room to settle for less than you owe. Debt buyers typically purchase medical debt for a fraction of its original value.

2. Check for Billing and Insurance Errors

You may be able to lower your bill by finding common errors, such as charges for services you didn't receive or insurance billing mistakes. Ask your provider for an itemized copy of your bill or, if your account is in collections, request a debt validation letter that includes a record of your charges from the collection agency. If you have insurance, you may also want copies of your EOB statements showing which services were covered and how much was paid. Contact your provider or insurance company to resolve any errors you find.

3. Ask for a Collection Hold

While you're reviewing your bill and/or disputing charges, you may want to put the collection process on hold. Ask your provider to put a hold on collections while you go over your charges and work with your insurance company.

4. Check Into Financial Assistance

Most hospitals offer income-based debt forgiveness programs, sometimes referred to as charity care. If you qualify, you may be able to reduce or even eliminate your medical bill. Income qualifications and available aid can vary, but it's worth inquiring since providers may not notify you about these programs unless you ask.

Tip: Nonprofit Dollar For offers help preparing and submitting financial assistance applications. A downloadable guide from the National Consumer Law Center gives an overview of state financial assistance programs, including which types of hospitals are covered and how you might qualify.

5. Make an Offer

Consider what you owe after resolving errors and accounting for financial assistance, and decide how much you're able to pay. If you can offer a lump sum, ask what the settlement amount would be if you pay the balance immediately. Or, start with a low offer—say, 25% to 50% of your total bill—and see what your provider or debt collector is willing to accept.

You can also challenge rates if they're out of line with what's typically charged. Check health care costs in Healthcare Bluebook and FAIR Health for comparison. If you don't have insurance, ask if you're being charged the same rates as someone who's insured.

6. Get a Settlement Letter Before You Pay

Wherever you land in your negotiations, get an agreement in writing before you pay. Your agreement should include the following information:

• The amount of your settlement and the date by which it will be paid
• A statement that the amount settles your debt in full
• Agreement that there will be no further collections
• Information on how the settlement will be reported to credit bureaus
• Confirmation that your account will be closed

Does Settling Medical Debt Affect Your Credit?

Settling medical debt for less than you originally owe can affect your credit, if the debt appears on your credit report as "settled" instead of "paid." Debt you owe to a hospital or health care provider often doesn't show up on your credit report: Providers typically don't report to credit bureaus. As a result, settling medical debt directly with a provider often doesn't affect your credit file.

However, if you settle medical debt of $500 or more with a collection agency after being in collections for more than a year, the debt might appear on your credit report as "settled" instead of paid. A settled debt on your credit report is considered negative information and can stay on your credit report for up to seven years.

Rules for reporting medical debt are different from other types of debt in collections. In 2022, all three national consumer credit bureaus (Experian, TransUnion and Equifax) voluntarily agreed to the following changes:

• Medical debt under $500 does not appear on your credit report.
• Medical debt of $500 or more will not appear on your credit report until it has been in collections for at least one year.
• Paid medical debt in collections will be removed from your credit report.

Unpaid medical collection accounts that are over a year old and for $500 or more can still appear on your credit reports. These collection accounts can stay in your credit file for up to seven years from the date of your first missed payment.

Accounts that appear on your credit reports still only affect some types of credit scores:

• FICO^® Score^Θ models FICO 9 and FICO 10 ignore paid medical collection accounts and give less weight to unpaid medical collections than other types of collections.
• VantageScore^® credit score models VantageScore 4.0, 4plus^™ and 5.0 ignore medical collection accounts.

Older credit scoring models may still consider and equally weight the medical collection accounts. Also, remember that you still owe the debt even if the account doesn't appear on your credit report or affect your credit score. Creditors might be able to request records of these unpaid bills from other sources or ask you about collections and consider the debt when reviewing your application.

Learn more: How to Pay Medical Debt and Avoid Damaging Your Credit

Alternatives to Medical Debt Settlement

If combing through medical bills and negotiating with your insurance company, health care provider or debt collector on your own sounds daunting, consider these alternatives:

• Ask about financial assistance. The Affordable Care Act requires nonprofit hospitals to offer free or low-cost care to qualifying patients, such as low-income uninsured or underinsured patients. State laws may expand the requirements to additional health care facilities and providers. You may be able to get financial assistance even if your bills are already in collections. In some cases, payments you've made may be refunded.
• Request an interest-free payment plan. Ask your health care provider if you can pay them directly in installments. You may be able to avoid collections as well as the interest charges and other financing costs associated with paying by credit card or taking out a loan.
• Check your Medicaid eligibility. If you're uninsured but qualify for Medicaid, some or all of your medical costs might be covered.
• Work with a medical bill negotiation service. These for-profit services negotiate medical bills on your behalf. Though you'll pay for their services, fees are often based on how much money they save you.
• Contact a medical billing advocate. Independent insurance and billing advocates help you organize and manage your bills, negotiations and treatment. The costs and payment structures can vary, but you may be able to get an initial consultation for free. To find an advocate in your area, check with professional organizations like the Alliance of Claims Assistance Professionals and Greater National Advocates.
• Consider loans or credit cards. Personal loans and credit cards should be considered a last choice option for medical debt. Even medical credit cards and loans may charge fees and deferred interest when you don't pay the balance off by the promotional due date. Transferring medical debt to any loan or credit card converts it into regular debt, so your missed payments and collections are reported immediately and can damage your credit.

Learn more: How to Get Help With Medical Bills

Frequently Asked Questions

The Bottom Line

Though receiving a large medical bill can be stressful, you have a year to settle or pay before medical collections can wind up on your credit report. Wherever you are in that process, it may be helpful to monitor your credit for unexpected medical collections and other changes that may be helping or hurting your credit. Experian's free credit monitoring includes a check on your FICO^® Score and ongoing monitoring of your score and report, so you're aware of changes as they happen.