Can You Settle Medical Debt?

Can Medical Debt Be Settled?

You may be able to settle a medical bill—meaning pay less than the full amount owed to satisfy the debt—with your provider, the debt collector or the debt buyer. And there may be several points in the medical bill payment process when you receive a settlement offer or want to negotiate your payment amount.

What Happens to Unpaid Medical Bills?

When medical bills go unpaid, the provider will generally attempt to collect the payment on its own. You might receive calls, letters, emails, texts or other messages asking you to pay in full, start a payment plan or agree to a settlement.

If you're unable to or don't make the payments, then the provider might assign your debt to a third-party debt collector that continues the collection efforts on the provider's behalf. Less often, providers sell unpaid debts to debt buyers. Again, the collection agency or debt buyer may ask for full payment, offer a payment plan or settlement.

Providers and debt collectors can also sue you for unpaid debts and attempt to garnish your wages, paycheck or, in some cases, tax refunds. But this generally only happens for large unpaid balances, and, even then, it's relatively rare with medical debt.

How Often Do People Settle Medical Bills?

The Urban Institute analyzed data from June 2022 related to adults (ages 18 to 64) who had past-due medical bills from hospitals. It found that the hospitals:

• Offered 35.7% of patients a payment plan
• Negotiated with 15.3% of patients to lower their medical bills
• Helped 12.1% of patients through a financial assistance program
• Helped 5.8% of patients apply for Medicaid

In other words, about a third of patients paid less than their initial bill.

When to Accept a Settlement

Settling for anything less than the full amount can feel like a win, but you don't need to accept an initial offer. Although there aren't precise numbers on average settlement amounts, you can consider the following general guidelines when negotiating a settlement:

• Providers and debt collection agencies working on behalf of providers might accept settlements for around 30% to 80% of the outstanding balance.
• You may want to start with a low offer to see if they'll accept.
• If you don't have insurance, you could ask the provider how much it would charge someone with insurance and offer to pay that amount, which may be much less than your bill.
• Debt buyers often purchase debt for much less than its face value, and may be willing to accept less than providers.

If you can't afford a lump-sum payment for a settlement, you may be able to use a payment plan to pay the settlement amount over time.

How Unpaid Medical Debt Impacts Your Credit

Medical collection accounts can hurt your credit score and affect your ability to qualify for new loans or credit cards. However, the three major credit bureaus—Experian, TransUnion and Equifax—made several important changes to medical collections and credit reporting in 2022 and 2023. Under the new rules:

• Medical debts aren't added to your credit reports until they're at least a year old.
• Unpaid medical collections for under $500 never appear in your credit reports.
• Paid medical debts are removed from your credit reports.

Accounts that are over a year old and for more than $500 can still appear on your credit report. These collection accounts can also stay in your credit file for up to seven years from when you first missed a payment. But they still only affect some types of credit scores:

• The latest FICO^® Score^☉ models—FICO 9 and FICO 10—ignore paid medical collection accounts and give less weight to unpaid medical collections than other types of collections.
• The latest VantageScore^® models—VantageScore 3.0 and VantageScore 4.0—ignore medical collection accounts.

Older credit scoring models may still consider and equally weight the medical collection accounts. Additionally, remember that you still owe the debt even if the account isn't on your credit report or affecting 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.

Alternatives to Medical Debt Settlement

You might have other options for handling the debt if you aren't offered or can't afford a settlement. You may also want to review these before negotiating a settlement because they might decrease what you owe.

Look Into Financial Assistance Programs

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 healthcare facilities and providers.

The programs are sometimes called discount, financial assistance, sliding scale, bridge assistance, medical financial assistance or charity care policies. And they may be able to help cover part or all of your bills:

• A National Consumer Law Center report from August 2023 has an overview of states' financial assistance programs, including which types of hospitals it covers and how someone qualifies.
• Dollar For, a nonprofit, has a free screening tool for financial assistance programs and offers help preparing and submitting assistance applications.

You might be able to get financial assistance even if your bills are in collections and, in some cases, get refunded if you already made payments.

Review the Medical Bills for Errors

Medical bill errors might lead to a higher bill than you should be paying. Ask for an itemized bill and then look for common errors, such as charges for services you didn't receive or duplicate charges. You can contact your provider or insurance company to try to resolve mistakes.

Ask About Payment Plans

You might have an option to repay the entire amount over time. Try asking for an interest-free payment plan directly from the service provider rather than applying for a medical loan or credit card.

The loans and credit cards may have additional fees and deferred interest offers—which means you may need to pay all the accrued interest if you don't pay off the balance by the end of the promotional period. Also, missed payments and collections may be immediately reported to the credit bureaus and treated the same as missing a payment on a personal loan or credit card.

Consult a Negotiation Service or Medical Billing Advocate

You can also turn to for-profit services to negotiate and try to lower your medical bills. Although they're not free, you might pay for the service based on how much money it saves you.

There are also independent insurance and billing advocates who can 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. You could look for advocates in your area in the Alliance of Claims Assistance Professionals and the Greater National Advocates directories.

Monitor Your Credit for Unexpected Medical Bills

Recent changes in credit reporting give you a year to work with your providers and insurance company to settle or pay medical bills before the medical collections can wind up on your credit report. However, you still want to monitor your credit for unexpected medical collections and any other changes that may be helping or hurting your credit. You can easily do this with Experian's free credit report monitoring, which also includes a FICO^® Score and ongoing score monitoring.