If your health care plan has a high deductible, it’s important to know in advance how you’ll cover it. In some circumstances, a credit card can come to the rescue. But before you just charge the bill, understand your options.
When your health insurance plan comes with a high deductible, the funds you’ll need to shell out before your policy kicks in can put you in a tough financial place.
If your health care plan has a high deductible, it’s important to know in advance how you’ll cover it. In some circumstances, a credit card can come to the rescue. But before you just charge the bill, understand your options. You’ll need to manage the card and your finances correctly so it doesn’t turn into a painful debt.
Deductibles can derail financial well-being
Excessive medical bills have long been associated with insolvency, and lack of insurance coverage was often blamed. The Affordable Care Act was supposed to alleviate consumers’ financial burden, yet since its passage in 2010, it hasn’t done much to stem those bankruptcies.
According to a recent led by David Himmelstein, a professor at the City University of New York’s Hunter College and lecturer at Harvard Medical School, 66.5 percent of filers cite uncovered medical expenses – including deductibles – as a principal reason for going bankrupt.
While it’s important to be insured, you still need to be prepared for costs that your policy doesn’t cover.
A deductible is the amount of money you’re responsible for before the plan’s benefits take effect. Without the cash on hand, you’ll have to find an alternative payment method. If you don’t, the business – whether a doctor, clinic, laboratory, ambulance company or hospital – can take negative action against you.
They can sue you for damages, though a delinquent medical bill is typically sent to collections. If it does go to a third-party collector and it goes unpaid for 180 days, it will appear on your credit report and damage your credit score.
Collection action can then begin in earnest, and you’ll probably receive plenty of harsh phone calls and letters. Unpaid collection debts can also result in lawsuits.
Before you charge, negotiate
For current medical bills that you’re responsible for as part of your deductible, “at the very least try to set up a payment arrangement with the company you owe,” says Lorena Tomasini, owner of MALM Life and Health Insurance Agency. This way you won’t need to charge the debt and can keep the liability off your credit report, thus preserving your score.
You also may be able to negotiate the bill down. Request an itemized statement from the provider so you can view a list of all the procedures and medications as well as their costs. If you believe the charges are excessive or think you were billed for unnecessary extras, jump on the phone with the billing department and tell them you want your bill reviewed for accuracy. Ask that they reduce it for you. It doesn’t hurt to try.
See related: 5 reasons not to put medical bills on credit cards
How credit cards can help with a deductible
In the absence of savings, credit cards can be a lifeline when dealing with a high deductible. There are a few options to do it right:
0 percent APR credit card
As long as you have a good credit rating a steady income you can probably qualify for a . If you do, you can charge the deductible and pay it off over a specific period of time without any interest being applied to the balance. Just don’t pay late, as it can nullify the deal, in which case the card’s regular APR would apply.
For some cards, like the Wells Fargo Platinum card, you have up to 18 months with no interest – a variable regular APR of 15.49 percent-24.99 percent kicks in thereafter. Therefore, if you were to charge a $2,000 deductible and pay a minimum of $112 a month (and didn’t make another charge), you’d be in the black without having to pay any financing fees at all.
Rewards card with a sign-up bonus
If you know the bill for your deductible is coming soon, you may want to take the opportunity to apply for a credit card that gives sign-up bonuses of cash or points for charging large sums.
For example, Chase Freedom offers a $150 bonus after you spend $500 within the first three months of opening the account. The card also offers a 0-percent offer for the first 15 months – and a regular variable APR of 16.49 percent-25.24 percent after that.
The Capital One® VentureOne® Rewards Credit Card offers 20,000 miles (which equals $200 in travel) for $1,000 spent in the same timeframe. This card also offers a temporary 0 percent APR on purchases for 12 months – and a regular variable APR of 15.49 percent-25.49 percent thereafter.
Low APR emergency card
Maybe you’re certain you can’t pay the deductible debt off swiftly. In that case, credit card expert and consumer finance analyst Beverly Harzog suggests getting an emergency card with the lowest APR possible.
“It’s good to have on hand for this purpose,” says Harzog. “You might not be able to predict when you’ll need it, so look for a card with the best rate you can get and then hang on to it. If you have to pay for the deductible, but don’t have the cash, you can pull this card out.”
Existing credit card
If you already have a credit card, you may not need or want to open a new one. Use the account you have, but be careful with your credit utilization ratio, especially if you’re already in debt.
A good rule of thumb is to use no more than 30 percent of your overall available credit; otherwise, your scores may decline. However, if it’s the only way to keep the deductible bill in good standing, it’s a sensible decision.
It was for Valentina Mendoza, a teacher’s aide living in Long Beach, California. She charged $3,200 for her daughter’s emergency room visit because it was the only way she could pay.
“I have a $4,000 deductible for my family, so all of that came back on me,” says Mendoza. “My insurance couldn’t pay any of it because it was at the beginning of the year and I didn’t pay anything to the deductible yet. It basically made me max out my card but at least I can pay it off in stages, which I am.”
Using a balance transfer credit card for a deductible is not a bad strategy for many cash-strapped consumers, says Tomasini.
“This way they can pay off the credit card little by little or transfer the balance to one with 0 percent interest or lower interest than their current card,” says Tomasini.
You can save a lot of money in interest this way, even if you did extend the debt payments. (Just beware that balance transfers typically come with a 3-5 percent fee.)
Imagine your deductible was $5,000 and you charged it to a credit card with a 24 percent APR. Your payment is a fixed $200 each month. If you transferred it to a card with 0 percent APR for one year and 17 percent APR after, you’d save $1,556 in interest (net of a 3 percent transfer fee of $150) – and have 27 months to do it.
Deal with the debt assertively
If you charge your deductible, make every attempt to delete it in record time even if the card has a reasonable rate. This is especially important if the charge pushed your credit utilization ratio into an unhealthy place.
“Look at your budget and trim it down until it almost screams,” says Herzog. “Get rid of everything you can for a few months, but keep one small treat so you don’t go crazy. Throw as much as you can to the credit card. Get a second job, explore side hustles. When you see the balance go down, not only will you feel an adrenaline rush, but your credit scores will go up too.”
At that stage, she says, you could qualify for a great balance transfer deal to take care of the rest of the obligation at almost no cost.
Save for future deductibles and other uncovered medical costs
For peace of mind, start saving now for the deductible and a whole slew of potential uncovered medical costs.
“It’s important to develop a savings plan,” says Reiling. “Look into what options your employer might offer. This could be a health savings account (HSA) or flexible savings account (FSA).”
With these employer-sponsored health savings plans, you can set pre-tax income aside and use the money for eligible health care costs, which include insurance plan deductibles. If you contribute the maximum, you’ll be covered, especially if you have an HSA. In 2019, the HSA contribution limits are $3,500 for individuals and $7,000 for families. For FSAs, it’s a straight $2,700.
A high health insurance plan deductible doesn’t have to harm your finances. With the right approach, you can make sure the bill is the lowest it can be and stays in positive standing with the provider.