Should you pay your health insurance deductible with a credit card?

In 2021, the average annual health insurance deductible for an employee with single coverage was $1,669, according to the Kaiser Family Foundation (KFF) survey. The deductible is the amount of money you’re responsible for before the plan’s benefits kick in.

Of course, the ideal scenario is to use savings to pay a deductible, but that’s not realistic for everyone. A recent Bankrate survey found that a mere 44% of respondents have the ability to cover a $1,000 setback with cash. Without the cash on hand for your health insurance deductible, you’ll have to find an alternative payment method.

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 and lack of insurance have long been associated with bankruptcy. The Affordable Care Act was supposed to relieve consumers’ financial burdens, but it hasn’t done much to stem those bankruptcies since its passage in 2010.

Analysis from Peterson-KFF suggests that medical debt continues to be an issue even though more than 90% of Americans have some type of health insurance.

According to a 2019 study published in the American Journal of Public Health, 66.5% of those filing for bankruptcy 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 expenses that your policy doesn’t cover.If you can’t afford these costs, the business – whether it’s 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 you can keep the liability off your credit report, thus preserving your score.

You may also 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.

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:

Save on interest with a 0% APR credit card

As long as you have a good credit rating and a steady income you can probably qualify for a 0% APR credit card. 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, or the deal will be void, and the card’s regular APR would apply.

For some cards, like the Wells Fargo Reflect® Card, you have 18 months from account opening with introductory no interest on purchases and qualifying balance transfers, with an extension of the offer for three months if you make on-time minimum payments during the intro period (17.24% to 29.24% variable APR thereafter).

With a potential introductory zero-interest period of up to 21 months, if you were to charge a $2,000 deductible and pay $100 a month (without making any other charges), you’d be in the black without having to pay any financing fees at all.

Earn rewards with a generous 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, the Chase Freedom Flex℠ offers a $200 bonus after you spend $500 within the first three months of opening the account. It also offers a 0% intro APR on purchases and balance transfers for the first 15 months with a regular variable APR of 18.74% to 27.49% after that.

The Capital One VentureOne Rewards Credit Card offers 20,000 miles (worth up to $200 in travel purchases through Capital One Travel) when you spend $500 in the first three months. And it also offers a 0% intro APR on purchases and balance transfers within the first 15 months (followed by 19.24% to 29.24% variable APR).

Get an emergency card with a year-round low APR

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.”

Review the current interest rates for credit cards and seek an account with the best APR you can get.

Utilize 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 ratio, especially if you’re already in debt.

A good rule of thumb is to use no more than 30% 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.

Transfer the debt to a balance transfer card

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% 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% to 5% fee).

Imagine your deductible was $5,000 and you charged it to a credit card with a 24% APR. If you paid $200 each month it would take you three years to pay it off and you’d spend an additional $2,000 on interest.

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

Deal with the debt assertively

If you charge your deductible, make every attempt to pay it off as fast as possible, even if the card has a reasonable rate. This is especially important if the charge pushes your credit utilization ratio too high.

“Look at your budget and trim it down until it almost screams,” says Harzog. “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.

You can develop a savings plan. Consider the options your employer might offer, like 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 likely be covered, especially if you have an HSA. For 2022, the HSA contribution limits are $3,650 for individuals and $7,300 for families, while the contribution limits for FSAs increased to $2,850.

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

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.

Bottom line

Paying your medical bill with a credit card can be a risk, so make sure you evaluate your options before making this move. Before charging your medical bill to your credit card, make sure you have a plan to settle the account and avoid credit card debt.