Medical debt has the power to seriously hurt your financial future. Many Americans are faced with unavoidable medical debt that has crippled their financial situation.
RIP Medical Debt is a nonprofit working to forgive medical debt for pennies on the dollar. They share their background and the amazing progress they've made.
Both Craig and Jerry worked in the debt collection industry for decades. With that experience, they saw all sides of the debt collection process.
I compliment you guys for helping put people on a [Financial Independence] track. Now I’ll tell you what gets them off the track…they are one sickness, they're one accident away from financial tragedy.
Friends and family lend or gift 55 billion dollars to cover medical debt each year. Plus, 37% of all crowdfunding goes towards medical debt.
So what can you do? Save, start an HSA (Health Savings Account), have insurance, and understand what your insurance covers.
Related: How An HSA Fits With Your FIRE Plans
With the high expenses in the medical field, having insurance is not enough. 68 million Americans are uninsured or underinsured. In order to be properly insured, your deductible shouldn't be more than 10% of your gross annual income. For example, if your gross income is $50,000, your deductible should not be higher than $5,000.
It can also be beneficial to compare yourself to the poverty level. If you are 2x the poverty level or below, then you can receive Charity Care, which will pay for every cent spent, even if you have insurance. Almost a third of all Americans make less than 2x the poverty level, so this could be a real option to avoid medical debt.
There's Charity Care. Every hospital, public or private, non-profit or for-profit has a financial assistance policy. There's 5,800 hospitals, you just have to know what your hospital gives.
Unfortunately, even with insurance and charity assistance, it is still possible to become victims of medical debt. After all, the insurance policies are written so that the company issuing the policy doesn't go broke. Their goal is to cover as little as possible based on the premium you are paying.
Make sure to understand your insurers. Are you buying your insurance from a private or public source? Are you buying directly from the insurance company or the employer? Ask questions and understand what your policy covers.
If you don't have insurance, then it is important to know that the hospital is required to charge you whatever is customary and reasonable.
What To Do When You Get Hurt
First, go to the hospital and get better. Then, deal with the financial aspect. As you go through the process, remember to be courteous to the debt collector on the other side of the line. Being rude will not help you resolve the problem. Remember, they are just doing their job.
What To Do When You Recieve A Medical Bill
The first thing to do with the bill is to call the hospital. Ask for an itemized list of everything in your bill. Many statements and bills have errors. It is just the beginning of a process.
Craig and Jerry warn that a third of accounts in collections are not accurate so this is an important step. You have to do this as fast as possible. Hospitals are notoriously understaffed in their billing department, so you may have trouble getting through to someone.
If you get a bill that turns out to be correct, then assess your ability to pay.
If a bill is up to 2.5% of your gross income, then hardship starts to creep in. If a bill is 5-10% of your gross income, then material hardship can set in. Material hardships involve not being about to pay your rent, utilities, grocery bill, and more.
So if they get this [medical] bill, they got to call up and say “I can't pay this.” As soon as you get a bill that you can’t pay, you get on the phone and you call your hospital. Like that day. Even if you were unconscious when you went to the hospital, you get a $10,000 bill and you get the bill in the mail, you call them up. And you talk with them.
The hospital has the ability to change the bill to zero. However, unless you tell them you can't pay the bill could go all the way to court. The hospital will turn the bill over to debt collectors in 90 days, so you must act quickly.
Here's another statistic for you…If you have savings, you are in a better position to be able to manage payments and still keep a decent lifestyle. 15 million Americans, 15 million Americans this year will exhaust their life savings because of healthcare debt.
These scary numbers inspired Craig and Jerry to start RIP Medical Debt.
How To Avoid Hardships
After you receive a medical bill, you need to be willing to pay only what will keep you out of hardship. To do this, take 2-3% of your gross income and divide it by 12. That is the monthly amount that you can pay your collections agency without going into hardship. Make that offer to the debt collector.
Of course, the debt collector will want you to pay the bill no matter what personal cost. They may encourage you to borrow the money or make the case that you are being irresponsible or make threats. However, they know that if they ask for too much or press too hard then you could go bankrupt or turn over all communications to an attorney.
The First Debt Collector
If you can't work things out with the hospital in 90 days, then the bill will be sent to a debt collection agency. The first agency is light and easy to deal with. You have to talk to them about your bill honestly here.
You have 30 days from the first contact to dispute the bill. If you dispute the bill, then the debt collector will have to go back to the hospital. They can tell the hospital that you are don't have the money to pay the bill. Sometimes, this first collection agency can tell the hospital that you qualified for their financial aid program but missed out on it.
Where The Bill Goes From Here
If you don't pay the bill with the first debt collector, then they will send it back to the hospital. Then, the hospital sends it out to another collection agency that is more aggressive. Finally, it may be sold to a third party debt buyer for cents on the dollar. However, the debt buyer will still try to collect the full total of the bill.
How To Settle
According to Craig and Jerry, it is very reasonable to settle at 50% with the debt buyer. After all, they bought your debt for a few cents on the dollar. You may even be able to get it down to 5-10% of the total bill. However, you will need to have the reasons to back it up.
Keep in mind that the debt buyer who now owns your debt is pursuing that debt to make a profit. If you provide them with details and information that you are insolvent, that you are in hardship, that you are 2x the poverty level or below. The debt buyer is in business to make money not to chase after bills he can’t collect.
If you make a strong case that you can't pay and back it up with evidence, then the debt collector will either forget about you or allow you to settle. Let them know that you may possibly be able to come up with some percentage of your total bill through family or crowdfunding. Say something along the lines of ‘If I was somehow able to come up with x amount of dollars, would you be willing to take it?'
Collections agencies should work out a deal or payment plan with anyone. If you don't get any help at all, then call the hospital and let them know so that they don't use that agency again.
How To Avoid Garnished Wages
1.5% of workers in America have medical garnishments on their paychecks! A garnishment can be between 10-15% of your income, which obviously creates a hardship.
Most of those garnishments are due to people not showing up in court when they are sued.
If you don't show up to a court hearing about your debt, then it morphs into a judgment that has nothing to do with your medical debt. It can be scary to go to court, but it is even scarier to skip your court date! If you show up to court, sometimes the judge will simply cancel your debt.
Also, you need to be aware of your legal rights and advocate for yourself. Every state has a statute of limitations on outstanding debt. This means that you still owe the money, but you cannot be sued for it.
RIP Medical Debt
RIP Medical Debt is helping to solve this pervasive problem of medical debt in our country. They buy debt for people that can't pay and should never pay. But some would anyways and it would lead to severe hardships.
The idea started when Jerry saw a group of people set up a medical debt forgiveness program. Although the program didn't last long, Jerry was intrigued by the idea. So, he reached out to Craig. After some convincing, the two teamed up to create RIP Medical Debt.
To date, they have wiped out close to $1 billion dollars of medical debt. They are able to do this by buying the debt at 1 cent on the dollar. The amazing rate they get is based on insider knowledge, personal connections, and volume.
Jerry and Craig co-wrote a book with Robert Goff, The Patient, The Doctor, And The Bill Collector . The book ended up getting them in front of John Oliver and led to them being on his show. Before the show, they had forgiven around $750,000 in medical debt. On the show, Oliver forgave $15 million!
After the show aired, donations really took off with more press attention. Overall, their growth has hit the hockey stick curve and is continuing to excel.
This article in Yes magazine really captures their story. It speaks of how life-changing medical debt forgiveness can be.
How To Get Involved
RIP Medical Debt is about people helping people. Donors from around the country have allowed RIP Medical Debt to forgive almost $1 billion dollars worth of medical debt.
If you want to contribute to this amazing cause through a random act of kindness that will get up to 100x the ROI of your donation, then consider donating to their organization at RIP Medical Debt.org or text the word debt to 50155.
A campaign is more appropriate for a more focused effort of donations. A person or organization can raise $15,000 or more to help forgive medical debt in the area of their choice. It could be your hometown or any other area in need.
RIP Medical Debt will use that money to forgive medical debt in their chosen area and let them know exactly how much medical debt they were able to forgive. Plus, there is a publicity campaign in that community to let others know through the local news.
Click here to find out more about the ChooseFI campaign or stay tuned for the Friday Roundup.
- Choosing Your Health Insurance: A Guide For Open Enrollment
- How to Get Out of Debt
- Practical Tips For Negotiating Medical Bills
New to FI? Be sure to check out Episode 100: Welcome To The FI Community!