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Seeking Medical Debt Relief? Crowdfunding Rarely Pays Off the Bills

Nov. 2, 2016
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Burdened by medical debt, some patients and caregivers are turning to crowdfunding for financial relief. Yet, on average, just over 1 in 10 medical and health care campaigns were fully funded, according to data provided by sites examined in a new NerdWallet study.

Crowdfunding — seeking donations from friends, family and strangers through online campaigns — has been touted in recent years as a way to get money to help launch creative projects, altruistic ventures and businesses, and as a method to pay for costs associated with health care. While crowdfunding may be a worthwhile option for those with large, generous networks, our analysis shows that it isn’t a dependable way to pay off medical debt.

Medical and health care campaigns make up the largest segment of crowdfunding at the sites examined. An average of 41% of campaigns were for medical costs, NerdWallet’s analysis of 2015 data from GiveForward, Plumfund, FundRazr and Red Basket shows. And yet, only 11% of medical campaigns were fully funded in 2015, based on the data received.

More tried-and-true methods of dealing with soaring health care bills include direct negotiation of payment schedules with medical providers or, for those with an enormous debt pile, declaring bankruptcy.

“Time is not on your side when it comes to unpaid medical bills,” says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. If you haven’t negotiated your medical bills within 120 days, the debt will likely be sent to a collection agency, he says.

“That’s when things get worse, because a third-party debt collector is going to have more resources dedicated to trying to reach you,” McClary says. Once the debt is sent to a collection agency, it may get reported to a credit bureau, leaving a black mark on your credit report that can follow you for years. Note that credit bureaus will wait 180 days before marking an unpaid medical account on a credit report, and such accounts will fall of a credit report if paid by a health insurer.

1 in 5 insured struggles with medical debt

Health insurance can provide a buffer when it comes to paying for treatment, and the Affordable Care Act is helping to close the gap between the nation’s uninsured and insured. Since coverage started in 2014, about 16.4 million Americans who didn’t have health insurance have been covered, according to a report by the U.S. Department of Health and Human Services. It’s worth noting, though, that the Obama administration recently announced premiums would increase an average of 25% in 2017 for insurance sold through the federal

So while medical care is more accessible, even people with coverage can struggle to keep up with bills. Twenty percent of all working-age Americans with insurance reported problems paying medical bills, according to a 2015 poll by the Kaiser Family Foundation and The New York Times. Among those who are uninsured, over half said medical bills are a serious financial challenge.

In addition, 26% of adults in the U.S. said they have serious financial problems due to health care costs, according to a survey taken in 2015 by NPR, the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health. Of those adults, setting up a payment plan with a health care provider was the most common consequence of high medical debt, with 44% having done so.

Turning to crowdfunding

Faced with staggering bills, some patients and their families are trying crowdfunding to offset the costs of care and coping.

“Given our current health care system, even with some of the changes being made in the last few years, there is so much money that goes uncovered even when you do have coverage,” says GiveForward CEO Josh Chapman.

Serious illnesses and diseases, such as cancer, are the most common reasons people cite for launching medical crowdfunding campaigns. At GiveForward, about 70% of medical fundraisers are for people recently diagnosed with cancer, according to the site. Most of the campaigns seek to offset out-of-pocket medical expenses as well as costs of living such as lost wages, transportation and child care, Chapman says. In other cases, caregivers might also need help with living expenses while tending to the needs of a loved one diagnosed with a major illness, he says.

Crowdfunding campaigns are usually started by a friend or family member on behalf of the person in need. “They tend to be more successful because it’s not someone asking for money for themselves,” says Plumfund co-founder and CEO Sara Margulis. “Something about that dynamic moves people to want to give.”

You’ll get to keep whatever money you do raise. But campaigns have a better chance at getting fully funded when they reach more people through sharing on social media, according to Bobby Whithorne, director of strategic communications for GoFundMe, which also contributed data to the NerdWallet study.

“What we traditionally see is the initial funds are from friends and family, but what happens is those friends and families share with their networks,” says Whithorne, noting that some GoFundMe campaigns have spread across the country and in some cases around the world, too.

Residents of urban areas or those who live in larger metro areas see more success from campaigns than those who live in rural areas because there’s a bigger community to tap into, Chapman says.

A look at medical crowdfunding in 2015

Crowdfunding sitePercentage of 2015 campaigns that were medicalPercentage of 2015 medical campaigns that were fully fundedAverage fundraising goal per medical campaign in 2015Average number of contributors for a fully funded medical campaign in 2015
Red Basket61%17%$12,40086

NerdWallet obtained data from five crowdfunding sites that host medical and health-related campaigns. Four crowdfunding sites didn’t respond to requests for data. Averages were calculated based on data provided by the sites, but some categories of data are missing.

Crowdfunding success

Among the sites that provided data, the average goal per medical campaign in 2015 was $15,721. Plumfund had the smallest percentage of fully funded medical campaigns in 2015 at 4%, but its average goal of $29,984 per campaign was much higher than the other sites.

GoFundMe, the largest source for online crowdfunding, didn’t supply data on its campaign success rate. However, the site did indicate the total amount raised by medical campaigns since its 2010 launch was $930 million, a significant portion of the approximately $2 billion it says its campaigns have raised.

The analysis found that fully funded medical campaigns saw an average of nearly 55 contributors. At GoFundMe, the average amount donated to medical campaigns was $80, and those that reached their goal had an average of 36 contributors.

At Plumfund, fully funded medical campaigns had an average of 66 contributors, compared with 26 for other fully funded campaigns.

Medical crowdfunding vs. other campaigns

GiveForward had the highest percentage (68%) of medical crowdfunding among all kinds of campaigns in 2015. Chapman says that’s because in 2009 the site decided to focus on medical campaigns. Although there are other campaigns at GiveForward, these are mostly set up by people going through major life events rather than those seeking to fund a business project or trip.

“We don’t host those kinds of fundraisers,” Chapman says. “There’s a great need and we felt the mission of GiveForward was to be more compassionate and focus on crowdfunding that helps people in need.”

Costs for a crowdfunding campaign

Crowdfunding sitePlatform feePer transaction fee
FundRazr5%2.9% + $0.30
GiveForward5%2.9% + $0.30
GoFundMe5%2.9% + $0.30
PlumfundNo fee2.8% + $0.30
Red BasketNo feeNo fee

Three of the five sites NerdWallet examined charge a platform fee of 5% on all donations as well as a fee for processing each transaction. Plumfund is the only larger crowdfunding site in this analysis that doesn’t charge a platform fee.

“We believe in the power of people’s generosity and the human spirit to support each other and we don’t want to exploit that by charging a fee,” Margulis says. “We want people to receive the full amount raised.” Plumfund’s payment processor, WePay or PayPal, charges a fee of 2.8% plus 30 cents per transaction.

Red Basket, a significantly smaller crowdfunding site than the others in our analysis, is the only one that charges no fees at all. That’s because Red Basket receives financial backing from WoodmenLife, a nonprofit life insurance company in Omaha, Nebraska. But, the website’s reach is small — there are less than 50 active medical campaigns listed on Red Basket, compared with thousands on GoFundMe’s website.

Other ways to reduce your medical debt

While the potential for crowdfunding success is uncertain, there are other, more surefire ways to ease the burden of medical debt. Negotiating a bill payment schedule with your medical provider and keeping track of procedures paid by your insurance company are both methods that can help make your debt more manageable.

If you are in over your head with medical debt, your best option may be to declare bankruptcy. Declaring Chapter 7 bankruptcy will wipe out medical bills and other debt that may have accumulated, such as past-due utility bills or credit card debt, and get collection agencies off your back.

It can be far worse to let your debt linger. When medical bills are sent to collections, it can negatively impact your credit report and credit score. The 2016 version of the FICO credit score, FICO 9, weighs medical debt less heavily than other debts. However, according to McClary, of the National Foundation for Credit Counseling, most creditors are still using FICO 8, which draws no distinction between the kind of debt in collections.

Declaring bankruptcy will make accessing new credit more difficult for 7 to 10 years, but credit card offers are likely to stream in immediately anyway. Attorney Chris Hansley of CS Hansley Law Firm, which has been designated by the federal government as qualified to provide bankruptcy assistance, advises her clients against taking on credit card or other debt since you can’t file for bankruptcy for another eight years.

Consult a professional

If you’re not sure which option is best for your situation, consider turning to a financial professional for guidance. A nonprofit credit counseling agency can also help you assess your debt and determine the best course of action.

If the prospect of debt negotiation is overwhelming, a medical billing advocate may be able to do the work for you.

If you’ve had enough of your bills and want to pursue bankruptcy, find an attorney who specializes in bankruptcy and has experience with cases similar to yours. Avoid companies that make promises to resolve your debt for a fee or without declaring bankruptcy — these are warning signs of scams, according to the Federal Trade Commission.

The longer unpaid medical bills stay on your credit report, the worse your score will be, especially if the amount you owe is proportionally higher than other debts, McClary says. Once you pay off bills or declare bankruptcy, time and responsible payment habits will repair your credit.

Anna Helhoski is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @AnnaHelhoski. Victoria Simons is a data associate at NerdWallet. Email: [email protected].