Medical Credit Score
Til Debt Do Us Part #3
By Melvin J. Howard
Do ever wonder why you have a low credit score or why you never seem to qualify for the lowest interest rates on home, car, or other loans, the problem may be medical debt. This is true even if you paid an overdue medical bill. The Federal Reserve has shown that more than half of all collection accounts that negatively impact credit reports are medical debt. This is a result of the fact that health care costs are on the rise and tens of millions are uninsured. But it is also because medical debt is treated differently from other kinds of debt. Private health insurance reimbursement is incredibly cumbersome. Different benefits are often covered by different companies and at different rates, leading to a lengthy, circuitous billing process that often leaves patients holding the bag. If you have ever received a medical bill that you didn’t understand or that you thought your insurance was supposed to cover, you have been caught up in this system. If you have ever received a letter from a health care provider stamped with the notice “This Is Not A Bill,” or if you have signed a form at a doctor’s office promising to pay anything your insurance fails to cover, you have been an unwitting victim in the tangled web of medical billing, an industry that thrives on patient and health care provider confusion.
One study found that nearly one-third of respondents let a medical bill go to a collection agency because they did not understand the bill or explanation of benefits statement. Another study estimated 14 million American adults said that a medical bill was sent to a collection agency because of a billing mistake.
Confusion keeps the medical collections industry turning. It’s hard not to think that billing “mistakes” may not be mistakes at all but part of an intentional strategy to keep patients in the dark and in the red. In addition to patient confusion, medical debt is more likely to end up in collection because hospitals routinely sell medical debt to debt collectors after 60-90 days of nonpayment, far less than the customary 180 days for other kinds of debt. Health care providers rarely report paid medical bills to the credit reporting agencies. So, even if you are billed in error, your health care provider may send your bill to a collection agency before you can dispute the charge. Once in default, a medical debt stays on a credit report for up to 7 years, even if you pay the bill. Research by the Commonwealth Fund shows that, in 2010, 9.2 million people wound up in default on a medical bill because of a billing mistake.
These mistakes have serious consequences. A single paid medical bill can lower a consumer credit score by as many as 80 points. That means you will pay a higher interest rate for almost anything else you want to buy on credit, including a home or a car. The fact that a relatively small medical bill can end up costing thousands in interest charges down the line demonstrates the obscene power of the credit rating agencies. No other companies have more power over the American consumer than the top three credit reporting agencies, Equifax, TransUnion, and Experian.
If patients are powerless, so are many health care providers. It’s important to note that your doctor may be just as confused as you are. Talk to any health care worker around the country, and they tell you that they are as frustrated as patients when it comes to medical billing. Why do insurance companies and ratings agencies have so much power over our lives? Why do we live in such perpetual confusion?
The Medical Debt Relief Act attempts to prohibit credit reporting agencies from listing medical debts on credit scores. Yet, even this minor reform has little chance of passing because the credit rating agencies and insurance companies are a powerful lobby in Washington. And even if the MDRA were to make it through the Senate, it only applies to paid medical bills. Indeed, the evidence actually indicates that if we don't act things will get worse for patients and debtors before they get better. FICO has begun developing a special ratings system to rank potential patients on how likely they are to pay their medical bills. Like having a barcode tattooed on your forehead, we could be looking at a brave new world in which your credit rating determines not only whether you can obtain a credit card but whether you receive medical care when you get sick.