Scratching Medical Debt from Credit Reports: The Pros

Last year, my husband went to a cardiologist for a routine stress test. His father died at a young age from a heart attack, so he’s cautious. We called our insurance company ahead of time and they assured us that as long as the test was done for preventive reasons, it would be covered and paid for by the insurance company.

Three months later, the insurance company had not paid the bill and we found ourselves going back and forth between the medical provider, who insisted they had billed it correctly, and the insurance company, which told us it had not been billed as a preventive procedure and therefore would be our responsibility to pay. When the bill approached the 90 days-past-due mark, I began to worry that it would be turned over to a collection agency and wind up on our credit reports.

Fortunately, this story has a happy ending. I doggedly pursued the issue until the insurance company paid, and we avoided damage to our credit reports.

But millions of people are not so lucky, and do end up with medical collection accounts on their credit reports. Sometimes it’s due to billing battles, like the one we faced, while other times it is due to a bill that slips through the cracks and never even reaches the consumer before a collection agency calls. And of course, sometimes the bills are just too large to pay. The Commonwealth Fund found in one study, for example, that about one-third of those without health insurance had been contacted by a collection agency over a medical bill. Based on 46 million uninsured Americans, they estimate that “translates to potentially 15 million patients with bad credit records from medical debt.”

Once a collection account is reported on a consumer’s credit reports, their scores can drop dramatically. Under the Fair Credit Reporting Act, collection accounts may be reported for seven years and 180 days from the date the consumer first fell behind on the bill with the medical provider. Paying a collection account is not likely to improve one’s credit score and contrary to popular myth, medical collections are not treated differently than other types of collection accounts when credit scores are calculated.

It would be impossible for the credit reporting agencies to examine millions of collection accounts and then determine which medical bills “should” be reported because they demonstrate that the consumer is having trouble paying his or her debts (and therefore is a higher risk), and which shouldn’t be reported because they are the result of a medical bill malfunction or a badly broken health care system.

The Medical Debt Responsibility Act of 2011 would require that medical debts of less than $2500 be removed from consumer’s credit reports 45 days after they are paid or settled. This bill is both fair and necessary.

Think about it for a moment. If you find a mistake on your credit card bill, you have the right under federal law to dispute it and withhold payment until the credit card company investigates. The card company is not allowed to report you as delinquent during that investigation. But if you receive a medical bill that’s wrong, good luck. There is no “Truth in Medical Billing Act” to protect you.

That’s why the Medical Responsibility Act of 2011 makes sense. It will no longer allow the health care industry to force consumers to pay for their poor billing practices with bad credit that can last for years.

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Image: takomabibelot, via Flickr