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.
