Headline: Debt before Yielding: the potential problems of Medical Debt
Date:11/16/2020
Body: I just read and article that, frankly, made me feel a bit ill. The article was about Medical Debt, and the excellent article can be found here, in its’ entirety:
https://money.com/worst-dogs-for-home-insurance/
Sometimes, we need to get medical treatment, and that treatment can be quite expensive. Just recently, with good insurance, I went to the dentist’s office and left with a bill for $3,000 for (mainly) the 2 crowns that he installed, and referred to as “emergent.” I still have several more appointments to go, I am hoping to be able to stretch into the new calendar year. (Thanks again for the teeth, Dad.)
All joking aside, this brings up a good point. Some people do not have the dental insurance afforded me by my job in the Federal Government. When they have an “emergent” issue that requires exotic dental work, what do they do? Some finagle loans from friends and family members, but, for some, this is not feasible. Some have no choice but to go into Medical Debt, and get a loan to cover the procedure. This is troubling.
What is Medical Debt?
Per Money Magazine, a medical loan is essentially just an unsecured loan you can take out in order to pay for health care expenses. The article indicates that this title is really only for Marketing purposes. The loan is exactly like any other unsecured debt that you might take out. The unsecured part is important here, because, that means that the bank or funding institution is taking on a much larger risk. And that risk is most often compensated for by charging higher rates of interest. (By comparison, when you get a car loan, the loan is secured by your car. If you fail to pay the note, your car is repossessed.) I think we can all breathe a little easier knowing that repossession does NOT apply to a Medical Loan.
Is this Really a big deal?
In a word, yes, it DOES matter and IS a big deal. I say this because of 2 things:
- The HUGE amount of Medical Loan Debt that there is in the U.S.
- The fact that the interest rates can be nearly usurious.
The Huge amount of Medical Loan Debt in the U.S.
The company CreditKarma did a study of 22 million Americans about their medical loan debt, and found a total of $45 Billion dollars of loan debt related to medical procedures. I would like to bring a few things to your attention:
- The sample was rather large, so, I think it is likely credible.
- This is likely an under-count as it does not include the medical debt that is funded with a credit card.
- This is likely an under-count as some people are likely ashamed of how much medical loan debt that they have. So, likely, more than a few reported a lower level than reality would attest to.
In sum, yes, I think there is a problem when the probably under-counted average is $2,200 per consumer.
The almost usury-level rates of interest.
The National Consumer Law Center has a wonderful infographic of the changes currently under consideration in State Houses across the U.S.
https://www.nclc.org/images/pdf/debt_collection/fact-sheets/fact-sheet-med-debt-state-reform.pdf
But, right now, the interest rates being charged range from 6% to 30% per year, per the article in Money magazine. This (or should be) outrageous!! This is especially unfair because, by definition, the consumer is under duress when he or she makes the decision to take out the loan and incur the debt. At that point, the only alternative might be a painful death.
What are the alternatives?
Fortunately, there are a few alternatives (even before your State House gets its’ Act together.)
- You could pay with a credit cardà But, this incurs revolving debt, which could significantly hurt your credit score and darken your financial future.
- You could negotiate with the hospitalà Especially if you anticipate only needing a few months to get the money together, it is not unheard of for the hospital to give you this time to pay. But, this is a chancy thing, and that doesn’t make ME feel well.
- You might be able to pay by tapping your home equityà You could setup a home-equity Line-of-Credit (HELOC) to finance your medical procedure. In the past, this had tax advantages, but now, it seems that medical debt does not have the same tax advantages as using the HELOC to improve your home, under new Tax Law. A Home Equity Loan might be your best option because it is secured debt (secured by your home) and has a much lower rate of interest.
REFERENCES
137 million Americans are struggling with medical debt. (cnbc.com)
7 Ways To Get Out Of Medical Debt : NPR
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.