Negotiate Medical Debt in Collections | Settle for Less

How do you negotiate unpaid medical bills in collections and settle for less than the total owed? Adopt strategies that may compel a creditor to grant partial forgiveness.

First, you can resolve to a lower amount owed by employing tactics that give you the advantage. For instance, seeking forgiveness, challenging pricing, and learning legal rights provide an edge.

Second, offering an immediate lump sum payment is a common approach debt settlement companies recommend. The trick lies in gathering enough money to make a compelling offer, demonstrating financial hardship, and drafting air-tight legal agreements.

Finally, setting up a monthly payment plan is a sign of defeat.

Negotiating Medical Bills in Collections

Consumers should investigate a variety of tactics when attempting to negotiate medical debt in collections. Take every opportunity to reduce the amount owed before reaching a legal settlement, as this affects your credit report (see below).

Seek Forgiveness

Seeking medical bill forgiveness is a valid negotiating strategy for low-income people without health insurance.

Hospital charity care (unpaid services) can help those uninsured, underinsured, or ineligible for other government programs such as Medicaid. People who meet income and asset requirements can receive financial aid to cover medically necessary services in acute care inpatient and outpatient facilities.

Challenge Pricing

Challenging the prices charged for every service is a relatively new negotiating strategy for medical bills in collections. To find errors, former hospital patients can now compare each invoice to a published pricing schedule.

Hospital price transparency rules became effective January 1, 2021. Each facility operating in the United States is required to provide clear, accessible cost information online:

  1. As a comprehensive machine-readable file with all items and services
  2. In a display of shoppable services in a consumer-friendly format

Legal Rights

Learn about your legal rights when negotiating medical bills in collections. Several laws could help you resolve the matter more favorably.

Balance Billing

The Federal No Surprises Act can help you resolve medical debts from out-of-network providers after an emergency. Effective January 1, 2022, you may not be responsible for certain charges when seeking care from providers participating in your health insurance plan.

Statute of Limitations

The Statute of Limitations (SOL) on medical debt provides critical bargaining leverage. The SOL provides a valid legal defense should a collection agency file a lawsuit to compel payment after the state-specified period has elapsed.

However, be very careful when communicating with collectors. The SOL re-ages (starts again) if you acknowledge the debt in writing or make a payment (see below).

Credit Reports

Knowledge about the laws regulating medical bills on credit reports will also provide critical bargaining leverage when dealing with debt collectors. Adverse history automatically disappears seven years after the date of the first delinquency.

A consent decree forced the credit bureaus (Equifax, Experian, TransUnion) to change how they handle medical debts appearing on the consumer reports.

  • Prohibit medical debts from being reported on credit reports until after a 180-day waiting period to allow insurance payments to be applied
  • Remove from credit reports any previously reported medical collections that have been paid or are being paid by the insurance company

Dispute Letter

Sending a dispute letter within 30 days of first contact could also provide significant bargaining leverage when dealing with medical debt.

The Fair Debt Collections Act (FDCA) requires the collector to mail the consumer a copy of a judgment or verification of the debt or the name and address of the original creditor, as applicable.

Any failure to comply exposes the agency to possible statutory damages.

Payment Plans

Setting up a payment plan is a reasonable approach to resolving medical debt in collections only after you are satisfied that billed amounts are valid and all your insurance and legal appeals are exhausted.  

People with proper borrowing credentials can take two different approaches.

  1. Offer immediate partial payment in exchange for a discount using money borrowed from a third-party
    1. Medical credit card
    2. Personal loan
  2. Retire the total amount owed over time from cash flow following a schedule approved by the healthcare provider 

How to Settle Medical Debt in Collections

You can reach a legal agreement to settle your medical bills in collections for a fraction of the amount owed if you fit a specific profile and follow a proven protocol.

  • Experiencing financial hardship with negative marks already on your consumer credit report
  • Actively employed and earning a regular income sufficient to cover all everyday living expenses

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Consolidate Bills

The first step to settling a medical debt in collections is consolidating selected bill payments into an escrow account. You need the capacity to offer something of value (immediate partial payment) to entice the creditor to forgive a portion of the balance owed.

This type of debt consolidation is not a loan. Instead, you divert payment from other obligations into the escrow account to build a significant balance, so being actively employed is a critical qualifier.

You can do this yourself or hire a debt settlement company to manage the process.

Demonstrate Hardship

The second step to settling medical bills in collections is demonstrating financial hardship. The creditor must fear getting nothing after bankruptcy to motivate them to forgive a portion of the balance owed.

You fund the escrow account (above) by stopping payment on select unsecured obligations such as medical debt, credit cards, and personal loans.

The late payments will appear on your credit report, which is why pre-existing financial hardship is a second qualifying criterion. The negative marks disappear from your file seven years after the date of the first delinquency. You would only hurt your credit score minimally if you were already behind.

Make an Offer

The third step to settle a medical debt in collections is to offer immediate payment for about one-third of the amount owed using the funds accumulated in the escrow account. Creditors are more likely to accept the offer if your credit report is riddled with delinquencies, demonstrating financial hardship.

A debt settlement company in your corner pays off at this stage as they can provide the appropriate legal agreements for both parties to sign. It might be a good time to hire a lawyer if you do this yourself.