What to Know about Medical Bills and Debt

A trip to the emergency room or bad news from your doctor could result in thousands of dollars in medical bills. Those medical debts, in turn, can do big damage to your bank account — and they can hurt your credit as well. Medical bills don’t generally head straight for your credit report, since they’re not related to a loan you took out. However, many healthcare providers sell unpaid debts to collections agencies, usually after 90 days or so. And those accounts can wind up on your credit report and hurt your credit scores. Let’s break it down.

Do Medical Bills Affect Credit Scores?

According to the Consumer Financial Protection Bureau, roughly half of all collection accounts on credit reports are due to medical debt, and these accounts can significantly damage consumer credit scores. A single collection can cause a decent credit score to drop by as many as 100 points. (Not sure where your credit score stands? You can view two of your free credit scores by visiting Credit.com.)

Many patients don’t realize how easy it is for a medical bill to damage their credit. They don’t understand that:

Even if you are making payments on a medical bill, it may be sent to collections. (It’s a common misconception that if you pay something, they can’t send the debt to a collection agency. That’s not true.)
Medical bills sometimes turn up in collections because a patient doesn’t know (or isn’t clear on) what they owe. At that point, the damage may have been done.
Collection accounts are usually damaging, regardless of whether they are medically related.
Paying the collection agency may not fix your credit. In most cases, those accounts are reported for 7 years plus 180 days from the date of the delinquency that immediately preceded collection activity (More on this below).

Can You Remove Medical Bills on Credit Reports?

The best course of action is to prevent a bill from winding up in collections in the first place. That’s why it’s so important to make all your payments on time. But if you’re unable to do that, the next best thing is to ask a collection agency not to report the bill to the credit agencies right away. If you’re able to resolve your bill quickly, you may prevent it from appearing on your credit report.

If you’ve received a collection notice and don’t believe it is accurate or fair, you can ask the agency to validate the debt under the Fair Debt Collection Practices Act. You may also dispute the bill with the three major credit agencies under the Fair Credit Reporting Act.

Can You Consolidate Medical Bills?

While it is possible to consolidate your medical bills through a debt relief program, you’ll want to be sure that you’re working with a reputable company who has your best interests at heart. If you find yourself struggling to pay unsecured debts such as credit cards, personal loans and medical bills, and you don’t think you can do it in the next five years, it’s a good idea to seek an expert who can walk you through your options. This may include a medical debt consolidation loan or another personal loan with a variable interest rate.

Help on the Way for Your Scores?

While medical debts can still severely damage your credit, changes over the last few years in the credit scoring and credit reporting industries have provided some relief to people with outstanding medical bills. Newer credit scoring models, including VantageScore 3.0 and FICO 9, ignore paid medical debts completely. More recently, as part of the National Consumer Assistance Plan — the result of a settlement brokered with 31 state’s attorneys generals — the major credit reporting agencies agreed not to report medical debts until 180 days after they were incurred, in order to give patients more time to resolve them. (The settlement was brokered in 2015 and the credit bureaus were given three years to implement the plan.)

How to Avoid Medical Debt in the Future

If you find yourself unable to repay medical bills or in the hospital without insurance, there are a few things you can do to avoid being stuck with an unmanageable amount of debt:

Know your options: Evaluate all the insurance, Medicaid and charity options available to you. The time it takes to investigate possible alternatives to high medical bills is well worth it. Don’t be afraid to ask the medical billing office questions about your options. Keep asking if there is something you don’t understand about your insurance or financing choices.
Review your bills closely: It is common to find double billings and errors on health care invoices. Take the time to closely review each of your bills and challenge any costs that you feel are incorrect. When you are challenging bills, however, be sure that the medical office is not selling your debts to collections while they are in dispute.
Consider paying with credit card: Use your own low-APR credit card to pay for medical bills instead of opening a new account through the hospital. If possible, choose a credit card with a 0% introductory rate and a low APR after that period expires.
Avoid financial traps: Pay your most important bills (such as your mortgage) first, before you pay medical bills. Never use a home equity loan to pay expensive medical bills. This type of loan can put your home at risk if you are unable to pay.

Consumer Advocates Push for Change

Over the past few years, the following regulations have been recommended by various consumer groups to improve patient’s rights and control potential abusive medical billings:

Regulate charity care programs: Health care providers should have clear standards to follow in regards to providing free or reduced care to patients. Patients should be given a full disclosure of their financing and assistance options.
Set clear income discount policies: Sliding-scale billing should be instituted to ensure that the poorest patients aren’t paying the most for their health care. The same discounts that insurance companies receive on medical bills should be applied to consumers.
Establish reasonable payment programs: Medical offices could actually increase their billing returns by establishing longer repayment periods with monthly minimums tied to the patient’s income. Just as student loans are set with low interest rates and low monthly payments, medical debt repayment should be affordable.
Restrict the sale of debts to collections: Medical debts should not be sold to collection agencies until payment negotiations have been completed and a set amount of time has passed. Also, the use of wage garnishment, property liens and judgments for medical bill collection should be restricted.
Cap medical prices for low-income patients: Healthcare providers should not collect more than the actual costs of services from patients who are low-income or uninsured. Currently, these patients often pay inflated “sticker prices” for their medical care.
Protect spouses from medical debts: Restrict health care providers from using common law doctrines to collect medical debts from spouses of patients, especially when these spouses are elderly or low-income.