Avoid Bankruptcy Over Healthcare Expenses

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With the ever-rising cost of medical expenses, an inability to pay health bills is now the top reason for personal bankruptcy. According to estimates by consumer advocacy group NerdWallet Health, in 2013 1.7 million Americans will declare bankruptcy because of an inability to pay medical bills.

Don't expect the new medical plans offered through the Affordable Care Act (ACA) to bail you out if you experience a healthcare crisis, either. While Obamacare premiums are likely to be lower, your out-of-pocket expenses, such as co-pays and deductibles, are expected to be higher. One catastrophic or ongoing medical condition can potentially put you on the edge financially.

Knowing your rights and having a plan in place in case a costly medical issue does arise goes a long way toward helping you avoid bankruptcy.

Medical bills don't affect your credit rating

Thanks to the Health Insurance Portability and Accountability Act (HIPPAA), the privacy law protecting your medical data, your medical bills can't be reported on your credit report. Bill collectors can call you, but no calls will be made to the credit reporting agencies. This means that it's important to avoid charging medical expenses on credit cards. If you put a hospital stay on your credit card and have difficulty paying it, this can end up on your credit report, because it is a credit card bill.

Negotiate payment terms

As with any debt, your best option is to talk to the medical organization where you received treatment and negotiate payment terms that work for your budget. By communicating with the hospital or doctor's office, you prevent them from sending your bill to collections, which makes negotiating repayment more difficult. Call as soon as you get the bill to work out a payment plan that involves no interest.

Check your bills and dispute any errors

Medical practitioners are only human, and your health charges aren't set in stone. Inspect your bills line by line to ensure that you weren't overcharged for anything. On a hospital invoice, for instance, several items or services listed that you never received can add up to a substantial amount of money.

Direct what you save in premiums to a health savings plan

Put the savings you get from lower premiums that will come with the ACA in a medical savings account. If you're employed, you can open a Health Savings Account (HSA) or a Flexible Spending Account (FSA), which both allow you to save money before taxes to use toward healthcare. Even if you don't have access to such plans, open a savings account for healthcare expenses.

If you're faced with high medical debt, bankruptcy doesn't have to be your only option. Keep these tips in mind, and you're likely to find debt help that is less financially damaging.

Julie Bawden-Davis is a Southern-California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in a wide variety of publications, including Family Circle, Ladies' Home Journal, Parenting, Entrepreneur and The Los Angeles Times.