5/18/2012 8:25 PM ET|
Will your doctor kill your credit?
Medical debts can have a devastating impact on your credit. But there are ways to keep your scores healthy even when faced with collection.
Maybe you thought your health insurer had paid the bill. Perhaps the hospital or doctor's office sent it to the wrong address. It's even possible you were the victim of medical identity theft.
However it happened, a medical collection on your credit reports can have a devastating impact on your credit scores and your ability to get a loan.
"If someone is squeaky clean -- they've always paid on time and their credit history is unblemished -- a single collection can have a pretty big impact on their score," said Frederic Huynh, a principal analytic scientist at Fair Isaac, the company that created the FICO score, the leading credit scoring formula. "It wouldn't surprise me at all if their score dropped by over 100 points."
The FICO formula treats medical collections the same way it treats other collection accounts, Huynh explained. The company's analysis has found that people who have a medical collection on their credit reports are more likely to default on other bills.
"It's a severe negative derogatory," Huynh said. "The population of consumers who have a medical collection is substantially riskier than the group of consumers that don't have any collections at all."
The latest version of the FICO formula, FICO 8, ignores all collections of $100 or less. But mortgage lenders and many other creditors still use older versions of the formula that take into account all collections, no matter how small.
Some consumer advocates question whether the outsize impact of medical collections on credit scores is fair to consumers, given how confusing billing practices can be and how easy it is for a bill to slip through the cracks.
"When someone normally pays their bills on time but winds up with a collection account on their credit, it's often a medical bill that's the culprit," said consumer debt expert Gerri Detweiler of Credit.com. "Unfortunately, in many cases, by the time you hear from a collection agency, it's too late to protect your credit scores."
I was aware of that when a hospital started sending us bills for an unpaid balance of $3,300 after the birth of our daughter. Every month, for more than a year, I called both the hospital and our insurance company to check on the status of this account. Every time, I told both parties: "I don't want this to go to collections. Let me know what I can do."
Sometimes, though, that's not enough. Readers have told me their medical accounts were turned over to collections without notice -- sometimes when they were making agreed-upon payments toward their balances.
A decade ago, researchers for the Federal Reserve found that one-third of consumers had at least one collection account (.pdf file) on their credit reports -- and that half of the collections related to medical bills. The amounts were pretty small potatoes. The median amount owed -- meaning half the accounts owed more, half less -- was $142. Of the medical collection accounts studied, 86% had an original balance of $500 or less.
Since then, a soured economy has left millions more people struggling to pay their medical debts. A Commonwealth Fund study found that 53 million people reported problems paying medical bills in 2010, up from 39 million in 2005. Thirty million said they had been contacted by a collection agency about unpaid medical bills, up from 22 million five years earlier.
Efforts to change how medical bills are reported and calculated into your scores have gone nowhere. The Medical Debt Responsibility Act of 2011, introduced in the U.S. House last year by Rep. Heath Shuler, D-N.C., would have required credit bureaus to remove medical collections of $2,500 or less within 45 days after they're paid. Similar bills were introduced in 2009 and 2010, Detweiler said. Despite some bipartisan support, the legislation was "referred to committee" and hasn't resurfaced since.
FICO analysts don't believe paying a bill eliminates the risk of default, in any case.
"Even consumers who have a paid medical collection . . . are substantially riskier than consumers who don't have a collection in their file," Huynh said.
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Back in June 2012 my 18 year old daughter had to have her appendix removed. I had insurance with high deductible ($2500 Ded.) but because this hospital uses OUT OF NETWORK doctors I am stuck with almost $7,000 in bills. If I would have gone to the State Hospital and played around the system and tell them I have no insurance and I am poor (I make $25,000 a year) they would have taken her and I wouldn't have all those bills. Now !! How screwed up is that. You get insurance and you pay the high premium then you have to foot the high bills. I called the OUT OF NETWORK facilities to try and negociate the high price (not the insurance price) and they plain refused. Why should I pay $3,300 for the Physician Assistant (OUT OF NETWORK) when the insurance would have only paid $300. I would have paid $1000 but not the full inflated price. The person told me that I didn't QUALIFY. what is that suppose to mean!!! Also if I would have been able to pay a lump sum (lets say $1000) then I would get the $2300 saving but because I can only do monthly payment they flat out refused to negociate. I told them that I was being penalized for not being rich and that I would not pay it until they negociated down. Obviously, they don't want money that bad since they didn't negociate with me. I have an excellent credit score and now I really don't care anymore. I have NEVER NOT PAID A BILL but its where it ends cause I am not rich and I need a payment plan with a negociated amount and I am not going to back down anymore. I have had it!!!!
i think sometimes the people who are doing these bills really need to watch what they are doing the other day i was sent a bill for my husband who hasn't went to the hospital in 2 years only clinics and he was sent a bill from our local hospital for a hysterectomy. i had to call and talk to the business office and explain to them that it was impossible for us to be getting a bill for this kind of surgery for my husband they was trying to bill us 3400 for it and we have good insurance i know what it cost for this surgery under this insurance it took me 2 hours and a trip to there office to get her to understand that he did not have this surgery and that it was impossible
the other problem i have with medical companies hospitals especially is that a lot of times i pay monthly payments to them and they send it to collections anyways most the time i dont even get a bill from them until it goes to collections
i got a bill the other day from collections that said thank you for your partial payment but we demand the full 2500 ( the only medical bill i have left to pay ) they acted like i could pull that money out of thin air just to give it to them i told them your welcome but i will still be paying payments that i would rather feed my kids and put a roof over there heads than just hand you our savings
My motto: Never buy what I can't pay cash for.
Oh, btw, I own my house free and clear and I own two nice vehicles free and clear.
Well, with medical bills, unfortunately, you can't always control them so easily.
When you have medical insurance that costs half your disposable income it should pay for 100% of your non-elective medical bills. It doesn't! Not even close.
I know from experience - no way is an appendectomy considered elective - it's a life threatening emergency. But does insurance pay - only partially - because the insurance companies classify so many items as being under "coinsurance", not covered, part of your co-pay, etc. Just more ways to say how can we screw over the sheep who have no other options but to pay and pay and keep on paying.
If you don't have insurnace they will reduce the bill by 80 percent, the overcharge to insurance companies by hospitals and drs is just crazy,
This country needs to come to terms with medical insurance for all. And understand health care shoudn't be a rich mans game.
I believe the reason your credit score goes down for owing medical bills is they feel you may be on your way out.
My wife and I have never had a credit card. she has never had a loan. nor at age 30 even have a credit score. we believe in paying cash for everything. if you can't pay cash then you don't really need it. credit is just a joke. be wise and save your money till you can just pay cash.
And then it occured to me...say what you will about the spammers - at least they are working.
The rest of you deadbeats complaining about doctors and insurance just need to pay your bills...preferably on time. Quit your whining, get off your dead rearend, and do some honest work for a change.
Your last commment is very telling. "If you use credit responsibly".
A medical bill is not credit! If a medical provider charges you for services, without disclosing the cost of those services, then how is that construed as a loan. What part of a past due bill is considered "irresponsible credit use"?
It should be illegal for any vendor to send to collections and report to credit angencies for bill. A bill is not a loan. Why cant they use the same process that any other business has to collect? They can sue in court and attempt collections or garnish wages. Credit has nothing to do with it.
This is all unfair, since the medical doctor did not check FICO before accepting you as a patient. If they had no interest in using that system to assess risk, then they have no business reporting to it. This is slander, plain and simple.
No wonder Doctors/hospitals get sued. they deserve it.
the doctor violates their first tenent, DO NO HARM.
I have medical collection accounts. I paid my deductables & co-pays. The insurance had to "pre-approve" the treatments etc. but they refuse to pay their portion of the bill so now they are trying to collect from me. I keep telling the doctors/hospital to resubmit the claim - their response was "we only submit it once, after that it is up to you to pay it."
I paid my part, not going to pay anymore so I guess I'm stuck!
Is it too much to ask for a sane medical system? Perhaps the clowns that are suppose to represent us at all political levels should get there heads out of their behinds and start seriously overhauling a medical billing system that must be the laughing stock of the world.
I have learned the hard way to find out up front before any procedure is done what the cost is, what insurance pays, and approximately what you are going to end up owing. And question anything that does not seem right to you as soon as possible. I recently had a simple outpatient biopsy done to the tune of over $7000 (highway robbery) which the medical billing office turned over to a collection agency before I even received a bill. They used the same company for outside billing as for collections and someone coded something wrong and it went to the wrong dept. Insurance paid their portion for two bills for outside diagnostic charges that 9 months later I have yet to receive a bill from either in spite of notifying each office twice they were either not sending me bills or sending them to the wrong address. Medical billing is a joke, I doubt that a lot of people in this field truly know what they're doing, and added to that insurance companies paying incorrectly, and contributing their share of incompetence, patients are in almost a no win situation. In view of all the variables and circumstances totally beyond a patient's control there is no way medical bills should be included in credit scores.
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