Health insurance: paying a deductible with a credit card?

In 2021, the average annual health insurance deductible for a one-time coverage employee was $1,669, according to a Kaiser Family Foundation (KFF) survey. The deductible is the amount of money you are responsible for before the benefits of the plan begin.

Of course, the ideal scenario is to use the savings to pay for the franchise, but this is not realistic for everyone. A recent Bankrate poll found that just 44% of respondents have the ability to cover a $1,000 cash failure. Without cash for your health insurance deductible, you will have to find an alternative payment method.

If your health plan has a high deductible, it’s important to know ahead of time how you’ll cover it. In some cases, a credit card can help. But before you just bill, sort out your options. You will need to properly manage the card and your finances so that this does not turn into painful debt.

Deductions can undermine financial well-being

Excessive medical bills and lack of insurance have long been associated with bankruptcy. The Affordable Care Act was supposed to ease the financial burden on consumers, but since its passage in 2010, it has done little to prevent these bankruptcies.

An analysis by Peterson-KFF shows that medical debt continues to be a problem, despite the fact that more than 90% of Americans have some form of health insurance.

According to a 2019 study published in the American Journal of Public Health, 66.5% of bankruptcy filers cite uncovered medical expenses, including deductibles, as the top reason for bankruptcy.

While it is important to have insurance, you should still be prepared for expenses that are not covered by your policy. take negative action against you.

They can sue you for damages, although an overdue medical bill is usually sent to collectors. If it ends up in a third-party collector and goes unpaid for 180 days, it will show up on your credit report and hurt your credit score.

Then serious collection activities can begin and you will likely receive a lot of harsh phone calls and emails. Unpaid collection debts can also lead to lawsuits.

Before you pay, agree

For current medical bills you’re responsible for under your franchise, “at least try to negotiate payment with the company you owe,” says Lorena Tomasini, owner of MALM Life and Health Insurance Agency. This way, you won’t have to charge any debt and you can avoid liability on your credit report, thus saving your score.

You can also negotiate a lower bill. Request a detailed report from the provider so you can view a list of all procedures and medications and their cost.

If you think your charges are excessive, or you think you’ve been billed for unnecessary extras, call the billing department and tell them you’d like your bill checked for accuracy. Ask them to make it smaller for you. It doesn’t hurt to try.

How credit cards can help with a franchise

In the absence of savings, credit cards can be a lifeline when dealing with a high deductible. There are several options to do it right:

Save on interest with a credit card 0% per annum

As long as you have a good credit score and a steady income, you can probably qualify for a 0% APR credit card. If you do this, you can charge the deductible and pay it off within a certain period of time without any interest on the balance. Just don’t pay late or the deal will be voided and the card’s regular APR will apply.

For some cards, such as the Wells Fargo Reflect℠ card, you have 18 months interest-free on purchases and qualifying balance transfers with an offer extension of up to three months if you make minimum payments on time (from 13.74% to 25.74 ). % variable annual interest rate thereafter).

With a potential interest free period of 21 months, if you charged a $2,000 deductible and paid $100 per month (with no other fees), you would be in the black without paying any finance fees at all.

Earn rewards with a generous signup bonus

If you know your franchise bill is coming soon, you can take the opportunity to apply for a credit card that gives signup bonuses in the form of cash or points for large withdrawals.

For example, Chase Freedom Flex℠ offers a $200 bonus after you spend $500 within the first three months of opening an account. It also offers 0% APR on purchases and balance transfers for the first 15 months, with a regular variable APR ranging from 15.24% to 23.99% after that.

The Capital One VentureOne Rewards Credit Card offers 20,000 miles (up to $200 worth of travel purchases through Capital One Travel) if you spend $500 within the first three months. And it also offers 0% APR on purchases and balance transfers for the first 15 months (followed by variable APR from 15.24% to 25.24%).

Get an emergency card with a year-round low annual interest rate.

Maybe you are sure that you will not be able to quickly pay off the deductible debt. In this case, credit card expert and consumer finance analyst Beverly Harzog suggests getting an emergency card with the lowest possible annual interest rate.

“Good to have on hand for this purpose,” says Harzog. “You may not be able to predict when you will need it, so look for the card with the best rate you can get and stick with it. If you need to pay for a franchise but don’t have the cash, you can pull out this card.”

Check out current credit card interest rates and find the account with the best APR you can get.

Use an 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 rate, especially if you’re already in debt.

A good rule of thumb is to use no more than 30% of the total available credit; otherwise, your scores may decrease. However, if this is the only way to keep a deductible account in good condition, this is a smart decision.

Transfer debt to balance transfer card

Using a credit card with balance transfer for a franchise is a good strategy for many cash-strapped consumers, Tomasini says.

“So they can gradually pay off the credit card or transfer the balance to a card with zero interest or a lower interest rate than their current card,” says Tomasini.

This way you can save a lot of money on interest even if you have extended your debt payments. (Just be aware that balance transfers typically incur a 3% to 5% fee).

Imagine your deductible is $5,000 and you charge it off your credit card at 24% APR. If you were paying $200 every month, it would take you three years to pay it off and you would be spending an additional $2,000 in interest.

If you transfer your balance to the card from 0% APR within 18 months and 17% APR thereafter, with the same monthly payment, you will end up paying less than $300 in interest and pay off your debt in just over two years ( 27 months). ). Even with a transfer fee of $100 (5%), you will come out way ahead.

Deal with Debt Persistently

If you are charging a deductible, do your best to pay it off as quickly as possible, even if the card has a reasonable rate. This is especially important if the fee is pushing your credit utilization ratio too high.

“Look at your budget and cut it to the bone,” says Harzog. “Get rid of everything you can for a few months, but keep yourself one small treat so you don’t go crazy. Throw as much as you can on a credit card. Get a second job, research side jobs. When you see your balance go down, not only will you feel an adrenaline rush, but your credit score will also go up.”

At this point, she says, you can qualify for a big balance transfer deal to take care of the rest of the obligation for next to nothing.

Save on future deductibles and other uncovered medical expenses

For peace of mind, start saving now for a franchise and a range of potential uncovered medical expenses.

You can develop a savings plan. Consider options your employer may offer, such as a Health Savings Account (HSA) or a Flexible Savings Account (FSA).

With these employer-sponsored health savings plans, you can set aside pre-tax income and use the money for eligible health care costs, which includes insurance plan deductibles. If you make the maximum contribution, you are more likely to be insured, especially if you have an HSA. For 2022, HSA contribution limits are $3,650 for individuals and $7,300 for families, while FSA contribution limits are increased to $2,850.

HSA contribution limits will increase to $3,850 for individuals and $7,750 for families in 2023, according to the IRS.

A high deductible health plan should not hurt your finances. With the right approach, you can ensure that the bill is the lowest possible and stays positive with the service provider.

bottom line

Paying a medical bill with a credit card can be risky, so make sure you evaluate your options before taking this step. Before charging your credit card for treatment, make sure you have a plan to pay off your bill and avoid credit card debt.