When it comes to serious debt, medical expenses are often the culprit for putting many people deep in the red. A survey by the Commonwealth Fund found that one out of five adults is paying off debt from medical bills. Making matters worse, higher medical expenses and reduced insurance coverage have forced families to dip into household savings or take on additional credit card debt.

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That said, a medical emergency doesn't have to turn into a financial one as well. Armed with the right information, you can handle expenses effectively and avoid the pitfalls of billing penalties and fees.

How Medical Debt Happens
When you or your family faces major surgery or medical treatment, the cost of the operation is the last thing on your mind. Once you leave the hospital, the financial side of an emergency can be bewildering. Hospital billing adds to the confusion because some hospitals send individual invoices for the ambulance, the hospital stay, the doctor, lab services and prescription medications. (It's difficult to predict financial emergencies, which is why you need to be prepared. To learn more, check out Build Yourself An Emergency Fund.)

Billing issues can lead to debt even for people who never face an emergency. Overdue payments for standard treatments or office visits are a significant source of incurred debt. If a medical provider lets you charge treatment to your health insurance, it's still your responsibility to make sure your insurance company actually pays the bill. Less commonly, unscrupulous doctors and chiropractors may perform unnecessary tests or charge for services not rendered, and these charges can lead to disputes over billing. (For related reading, see Digging Out Of Personal Debt.)

Medical Debt and Credit Cards
In an effort to ensure payment for services, some health care providers encourage patients to use credit cards to settle bills upfront. In certain cases, hospitals and clinics may even team up with credit card agencies to offer incentives, such as bill discounts.

But holding credit card debt rather than medical debt could hinder your ability to get financial assistance if you run into trouble paying your bills. When you convert medical expenses into credit card debt, the expense becomes consumer debt and you are then subject to associated penalties and fees. Consumer debt can affect your ability to secure a mortgage, pass a credit check for a rental application, or get a job.

Credit cards specifically designed to pay for medical services have become a promotional vehicle for providers who want efficient payment. You can apply for a credit card, such as CareCredit online and get instant approval.

CareCredit, an arm of General Electric Money Company, states clearly that the card is intended for patients seeking elective treatments, such as dental work or vision correction surgery, not for emergency care. Details are clear on the website: It offers an 11.90% APR and promotional packages give patients interest-free payments for up to 18 months. As appealing as these promotions are, you must be able to pay on time. If you are delinquent with your payments, APR jumps up to 28.99% and finance charges can start to rack up and amplify your debt. (To read more about credit cards, see Take Control Of Your Credit Cards and Understanding Credit Card Interest.)

Home Equity Loans
Faced with a mountain of debt and calls from collection agencies, some people consider a home equity loan to pay off medical bills. But borrowing against the equity of your home can mean a monthly payment that may be much higher than your original medical bill. It can also mean a high interest payment and you may have to pay points, both of which fuel more debt.

When you take out a home equity loan you put your home at unnecessary risk. Medical debt is unsecured debt, whereas a home equity loan is considered secured debt - it's backed by collateral or a security, in this case your home. By transferring your debt, there's the added risk in that if you can't repay the debt, you then could lose your home. (For more insight on home equity loans, read Home-Equity Loans: The Costs)

Health Plans and Adequate Coverage
Health insurance plans are supposed to shield people from incurring unmanageable debt from medical expenses, but for many families, insurance has not provided the necessary protection in an emergency. The 2003 Commonwealth Fund Biennial Health Insurance Survey revealed that around two-thirds of people with medical debt had health insurance coverage when an emergency occurred.

With employers shifting more of the burden for health insurance onto the shoulders of employees, coverage has grown increasingly expensive for consumers. Plans also provide less comprehensive coverage than before, despite rising premiums and deductibles. Congress introduced health savings accounts (HSAs) in 2003 as a potential solution to ease the pressure of health care expenses. HSAs were designed to help individuals save for future qualified medical care on a tax-free basis.

However, HSAs have not proved to be the magic bullet for avoiding medical debt. To qualify for an HSA, you must have a high-deductible health plan. The Commonwealth Fund Survey revealed that people with higher deductibles ended up with more problems from medical bills. Over half of those with a deductible of $1,000 or more reported difficulties paying medical bills, compared with 24% of insured adults with no deductible. (To learn more about HSAs, see Health-y Savings Accounts)

Your Due Diligence
The consequences of medical debt go beyond finances. People who carry medical debt often avoid getting necessary treatment or filling prescriptions. An Access Project study showed that two-thirds of people with a medical bill or debt problem went without needed care because of the associated costs.

Although hospitals and medical providers are eager to get paid on the spot, you must choose a payment option that is healthy for you. Your best option is to negotiate a payment plan directly with your hospital or provider, who would prefer to get paid over time rather than not at all. You may be able to negotiate a payment plan that's interest free, or doesn't incur penalties and additional fees if you make a late payment. Negotiating directly with the hospital or medical provider could even mean a reduction in your bill, which decreases your debt.

You also have rights as a health care consumer and one of those rights is to be allowed to examine a copy of your bill and your medical chart before you pay. Hospitals and medical providers do make mistakes and those mistakes can show up as billing errors. Take the time to scrutinize your invoice carefully. The dates on your billing statements should match the dates of your treatment, and services rendered should match your medical chart. Sometimes an error can be a misprint, such as an extra zero that makes the bill jump from three figures to four.

Credit counseling or a debt management service may be the right option if your bills are out of control or you have trouble making a budget. Research these organizations carefully. Some services prey on desperate consumers, claiming to be nonprofit agencies and charging exorbitant fees. Look for a reliable source of assistance, such as a service provided through a credit union or other financial institution, the military, or a university.

Finally, as a health care consumer it's critical to recognize the right time to visit the emergency room versus the right time to make an appointment with your doctor. You can prevent a lot of billing problems by getting prior approval for treatments from your insurance company.

Conclusion
After the medical procedures have ended, there can still be much pain and turmoil over the payment. If billing issues do arise, remember that you get a fairer shake by dealing directly with the hospital or clinic - never pull out the plastic. Your future financial health and well-being could be on the line.

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