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.
If you have overwhelming medical bills, your credit scores may be the least of your concerns. One more collection account is unlikely to have much impact once your scores are battered by multiple late payments, charge-offs and other collection accounts. The information in my columns "How to haggle over medical bills," "How not to pay your bills" and "Bounce back from bad credit" may be more relevant to your situation.
If you're trying to protect your scores from the impact of a rogue medical bill, however, here's what you need to do:
- Monitor every medical bill. Don't assume your insurer will automatically pay, even if it pre-authorized a treatment or procedure. Medical providers are often quicker to turn over an unpaid bill to collections than lenders or other creditors might be, so you want to pay close attention to the status of every bill. Once 30 days have passed, you should be on the phone to both the provider and your insurer to see what's happening. Start the appeals process with your insurer if necessary.
- Don't pay without thinking. If an account is turned over to collections, or if you discover a collection on your credit reports, your first instinct might be to pay it to get rid of it. That typically won't work. Your leverage to get the collection deleted from your credit reports often disappears once you pay the bill, so try other methods first.
- Dispute the collections with the bureaus. If the collection is large or recent, this probably won't work. But collection agencies may not bother to verify a smaller, older collection account, so disputing the collection as "not mine" may succeed in removing the account from your credit files.
- Ask your provider to take back the account. Many creditors sell their delinquent accounts to collection agencies, leaving you no choice but to deal with the collector if you want to pay the debt. Medical providers, on the other hand, often place their delinquent accounts with collection agencies on a commission basis, said Nicholas Newsad, the author of "The Medical Bill Survival Guide: Easy, Effective Strategies for People Experiencing Financial Hardship." If you can pay the bill, try asking the medical provider to take back the account from collections and remove it from your credit reports.
- Consider "pay for deletion." You'll have the most leverage if you have a lump sum and you can pay the entire bill, or at least most of it (if the amount owed is large). If that's the case, tell the collector you want the collection account removed from your credit reports as part of the deal. Don't pay until you get the collector's promise, in advance and in writing. Follow up in a month by pulling your credit reports to make sure the collections have been deleted.
- Remember that time heals most credit wounds. If a medical collection remains on your reports despite your best efforts, don't despair. Over time, the impact of a negative mark fades, particularly if the rest of your credit reports shows you use credit responsibly.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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And they can cram their "scores" up as far as they can get it where the sun doesn't shine.
Medical bills never used to be a part of the credit report, and should never have become. Medical emergencies are not like buying new homes and cars and renting limos for parties. They are unavoidable and can put people into the poor house very quickly.
It's straight up obvious that if one single debt can ruin a credit score, the "system" has failed and It's unfair to hold such nonsense over people's heads and lives.
I think it is about time credit scores went the way of the dionsaurs. After working hard to keep an almost perfect score, identity theft killed it. And, I am having to work it out myself, because the company involved that is doing the "collection" on something taht wasn't even mine, has a reputation of being a bottom feeder and playing outside the rules. No one wants to touch them.
Since everyone, including gov't and credit companies have admitted that at least 50% of consumers will or have been hit by id theft which will ruin their credit, something has to be done. Too many people are suffering to ruined credit due to no actions of their own.
I had bill from "The Minute Clinic" at CVS pharmacy go to collections for a total sum of $54. The collection agency sent one notice to the wrong address and then listed it as a default. Their method is to let the consumer find the ding on their credit and then the consumer seeks them out. That one $54 medical bill dropped my score 140 points from an 840 to a 700. First bill I have EVER missed. And of course the collection agency sees nothing that they have done wrong because they have done the minimum required by law to contact you. Dirty pieces of S**T!
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 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!
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.
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.
They let the BILL SIT in CONGRESS as if they are flatly saying WE DO NOT CARE ABOUT THE people of this nation.
hell yes is the answer! We were guardians of our granddaughter. She left us & went back to mom. we dropped her from our insurance & her mom picked her up. We had the better insurance. thanks to the doctor's office not verifying insurance info, the insurance companies not verifying info-long story short: our insurance company paid & then took back their payment when they found out they shouldn't have paid. NOW: everyone is after US to pay out of OUR pocket for the damn surgery!
We are having to fight TOOTH & NAIL to get these people to understand IT IS NOT OUR RESPONSIBILITY THEY SCREWED UP!
Credit reporting agencies do not get the full story. It's black or white with them. LIFE IS NOT BLACK & WHITE. THERE ARE GREY AREAS. If big business' get to file bankruptcy & come back all the time why can't the average joe's?!!!!!!!
it is nothing more than a scam to bilk borrowers out of even more money.
like other things, it started out as a good idea, and is now is a tool for the credit gestapo
to rip off and cheat the average American, one more way they get to people who are just trying
to get by. the government will stand for this because the bankers are the ones who line
the politicians pockets, not the taxpayer !!!! banker scum, just like the past two centuries !!!
Two members of my family have chronic medical conditions that require monthly prescriptions and Dr. visits. One family member has to see a specialist which is even more expensive. We pay large premiums with huge deductibles and co-pays and still end up with balances after the insurance pays "their" portion. We work together as a family to pay our bills and we don't live extravagantly. We have a small house with a small mortgage and two used cars that are paid off. It is becoming more difficult every month to pay just the basic bills and buy groceries. The insurance companies are out of control and we do not forsee things getting better anytime soon. So if my credit score is lower because of medical debt I have to accept it for what it is-LIFE! To the people at the collection agencies I am not sure how you sleep at night. To the insurance companies what comes around goes around!
Well like the medical field, I performed triage on my bills sorry medical was the one to be let go. Not like i have a choice someone in my family is sick needs medical attention, who the hell cares about the bill or the credit score. My family is more important then anything in this world. No One not even a credit reporting agency or bill collector can convince me otherwise
I have insurance throught my employer, but due to the outrageous cost, I can not afford to add my children on to my policy, nor can I qualify for State Assistance due to my income.
You can not "predict" when you will need medical services, so that could bring an added expense that may not fit into your budget.
Medical bills, I feel, should not be place on your credit report, especially if you can't afford to pay it all at once, or are slow pay due to income.
I guess you are not suppose to pay your rent, car payments, feed or clothe your children or have gas money...you must pay them first.
Medical bills are not a line of credit, a loan or a mortgage, so how can they gauge it to be as equal as those types of account?
I can tell you that some hospitals do offer Financial Assistance program, and it is worth checking into..even if it cuts your bill in half.
Until things change, we may as well face facts, but I only predict it will get worse.
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