Paying out-of-pocket health care costs

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6 min read

As the economy sours, more employers are cutting back on health insurance benefits, if not outright eliminating them. Add these workers to the hundreds of thousands of uninsured and underinsured Americans, and there’s little doubt that consumers should expect to shoulder more of the burden of paying their own medical costs.

The U.S. government predicts that consumer out-of-pocket health care expenses will reach an average of $3,301 a year for each household by 2014 from $2,500 in 2009. These costs are in addition to any health insurance premium from employer-sponsored health care plans, COBRA coverage or private health insurance, all of which continue to increase at a pace higher than inflation.

According to a 2008 study by the Commonwealth Fund in New York, two-thirds of U.S. adults younger than 65 in 2007, or 116 million people, had trouble paying medical bills, went without needed care because of cost, and were uninsured for a time or were underinsured, meaning they had high out-of-pocket medical expenses or deductibles.

As more consumers find themselves struggling to pay growing levels of medical-related debt, providers are searching for payment options to help stem defaults.

Among the options are specialized health care credit cards and provider-sponsored payment plans and loans targeting certain medical procedures. All of these options, while not available to all consumers, provide the opportunity to pay for potentially expensive care over a period of time.

“I think the health care system is getting set up to be a lot more accommodating to people who are having trouble paying their bills and can demonstrate that,” says Steve Findley, a senior health policy analyst with Consumers Union, a not-for-profit advocacy group in Yonkers, N.Y.

“Providers, from what we’re hearing, are open to working with consumers. There has been a move on the part of hospitals for some time to loosen things up because they were getting a bad reputation for being so Draconian with collections,” he says.

Ways to make paying out-of-pocket health care costs easier

  • Take a three-pronged approach.
  • Ask about low-cost health care options.
  • Learn to negotiate health care prices.
  • Pay with a health care credit card.
  • Chip away at your medical bill with a payment plan.
  • Seek loans to cover elective surgery.

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Take a three-pronged approach

When seeking help with paying out-of-pocket health care expenses, it makes sense to understand the specifics of the treatment you need, find the least expensive place to get it, and negotiate costs and payment methods upfront. This three-pronged approach can lessen your overall direct costs and help you obtain the least expensive payment option.

When you need medical treatment, whether it’s covered or not covered by your insurance plan, the first step is to understand exactly what the treatment is, why you need it and how badly, and how much it’s likely to cost.

“Ask your doctor for more details,” Findley says. “If it’s a test, what is the test? Why do I need it? On a scale of one to 10, how important is it that I have it? Is there a place where I can get it cheaper because, guess what, I’m paying for this out of my own pocket?”

Ask about low-cost health care options

When it comes to finding the lowest cost care, not only are consumers reluctant to ask about these options, but information is also not widely available. While there is a lot of comparison shopping for prescription drugs, there isn’t for medical procedures or tests.

“People aren’t used to shopping around when they need an MRI, but they should,” says Findley. “There is no substitute for getting on the phone and calling around. Most people are intimidated by this process, including myself. It’s intimidating because you may not know exactly what you need.”

But such efforts can be rewarding in obtaining cheaper care, which studies have shown is generally not linked to lower quality care, he says.

“Health care pricing is mercurial and illogical in a lot of ways and is more or less according to what the provider can get away with,” says Findley, who adds that price tends to vary by region as well.

Learn to negotiate health care prices

Armed with price information, you can then negotiate. If your preferred provider is more expensive than another provider in your area, try to get the preferred provider to reduce the price to the lower level. Also, if you can pay upfront, you have more leverage to get the price reduced further. The health care provider might work with you in exchange for avoiding the uncertainty and delay of collecting funds from a patient.

Red Gillen, a consultant with Celent Inc., a research and consulting firm in New York, and author of a report on health care financing options, believes that high default rates for care that consumers pay for directly have pushed providers to be more receptive to alternative payment plans such as paying upfront or over time.

“The fact that 50 percent of these types of accounts aren’t (able to be) collected by providers opens up opportunities for discussions and negotiations,” Gillen says.

When you go in for a test, procedure or doctor’s appointment, call in advance and make your financial situation clear. If you are paying out of pocket and don’t have the funds to pay upfront, inquire about payment plans or health care financing.

Pay with a health care credit card

Health care providers, especially hospitals, are encouraging patients to discuss payment options through financial counseling, says Douglas Braun, president of Internet Payment Exchange, a Toledo, Ohio, company that supplies Web-based electronic billing to health care companies. Financial counseling takes place when you are admitted to the hospital or check in for a test or other procedure and usually includes discussions about the likely cost and payment options.

Here are the typical options for paying out-of-pocket expenses:

  1. 1. Traditional credit cards. Consumers have used traditional credit cards for years as an ad-hoc health care financing method. But with credit card issuers squeezing consumers with higher rates and slashing balances, greater credit card debt isn’t an option for many consumers. If it is, be sure to compare the costs of putting health care expenses on your credit card with other financing options.
  2. 2. Health care credit cards, including GE Money CareCredit and ChaseHealthAdvance, are a health care-specific line of credit. You apply through either GE or Chase or your doctor’s office. If you are approved, you decide the length of the payment plan you want. Those that run from three to 18 months carry no interest charges as long as bills are paid on time, while those running from 18 to 60 months carry interest rates of 13.9 percent or higher.

Both card programs mainly target elective procedures such as cosmetic surgery and vision correction.

“We are definitely seeing an increase in these types of (cards) as people are looking for options to fund their health care costs,” says Maik Klasen, senior director of the Healthcare and Life Sciences Consulting Group at Frost & Sullivan, a consulting firm based in Palo Alto, Calif.

Like typical credit cards, you apply for them, and their terms are based on your credit score and history. Not everyone will qualify. Some cards offer low teaser rates or zero-percent interest financing for a limited time. Others are linked to payroll deductions. The latter is a growing method, especially for health care system employees who can have procedures done and pay the bill through payroll deduction, says Braun.

“For people who run into a situation where they are basically out of cash and need to get a procedure done which hasn’t been planned for, (these cards) are a relatively attractive alternative to bridge a short-term income issue,” says Klasen. The hitch is, if you don’t pay your bill on time or you pay less than the minimum payment, your rate could skyrocket to as high as 30 percent, increasing your overall cost substantially.

Chip away at your medical bill with a payment plan

Payment plans come in two forms — informal and formal. Under the informal plan, a consumer will make a payment when a bill arrives, reducing the bill by that amount, then getting a bill the next month and continuing to pay it until the cost is paid off, says Braun.

Under more formal arrangement, you set up a payment plan with your health care provider during a financial counseling session. You can pay monthly or twice a month by having a predetermined amount automatically deducted from your checking account over a specified period of time, such as six, 12 or 18 months.

If you are entering into a payment plan agreement, be sure to ask about the financing terms. Many hospitals still offer interest-free payment plans, especially for smaller amounts, but more may move to charging interest and fees as a way to generate revenue, says Gillen.

Seek loans to cover elective surgery

Health care loans are similar to signature loans, but they are granted by a financial institution for a health care expense, generally a fairly expensive elective procedure such as Lasik eye surgery or braces. They are generally offered through individual doctor’s offices and include information on payment terms and an application.

If you’re interested in one of these loans, be sure to compare the terms with other credit so you get the lowest cost credit possible. In general, doctor’s offices offer these plans as a service to patients and don’t receive payments from the financial services companies that provide them, says Klasen.

With the need for consumer health credit rising so quickly, providers who take advantage of this trend to offer credit options may find themselves with a competitive advantage, says Gillen, because consumers will be searching more aggressively for this type of credit.

“If you need to get a certain procedure done, and quality and outcomes are the same at two given institutions but one offers some kind of medical credit and the other doesn’t, the existence of medical credit at one could be a differentiating factor going forward,” says Gillen.