4/19/2012 6:15 PM ET|
4 costly medical bill myths
When doctor or hospital bills go unpaid, they can end up going to collections and hurt your credit score. To protect yourself, you need to know how the process works.
If you want to keep your credit rating strong, you might want to stay away from a hospital or other medical facility. Even if you have good insurance or can pay for any illnesses or emergencies that arise, you could wind up with a collection account on your credit reports, and your credit score could tank as a result.
Some 30 million Americans were contacted by collection agencies in 2010 regarding unpaid medical bills, according to research by the Commonwealth Fund. And previous research from the Federal Reserve found that more than half of all collection accounts on credit reports are related to medical bills.
Here are four common misconceptions about medical bills that can cost you dearly:
Myth No. 1: As long as I am making payments on a medical bill, it can't be sent to collections.
The truth: Making payments on a medical bill doesn't necessarily keep it out of collections. If you are making small payments, or if you make your payment a few days late when you are under a payment arrangement, you may discover the provider has turned over the bill to collections.
And consumer protections are few and far between. In California, hospitals are required to give patients a 150-day period during which they can negotiate their hospital payments before their medical bills are sent to collection agencies, according to Families USA. And in Minnesota, the group says, there is a clear process for "patients to dispute or challenge bills from hospitals or clinics, and no judgments may be made against patients until they are given a fair chance to respond." But for the most part, any unpaid balance is fair game.
Myth No. 2: I have to be notified before a medical bill is turned over for collections.
The truth: You may not even know you have an unpaid medical bill until you get a call or letter from a collection agency. At that point, it may be too late to avoid damage to your credit. Bills fall through the cracks, are sent to the wrong address or sometimes are not sent to the patient before they are turned over to collections. And when that happens, tough luck.
While some collection agencies will agree not to report medical collection accounts that are paid off immediately, others refuse to do so. And some bill collectors will use the threat of credit report damage to try to get patients to pay up, even if the bill itself is disputed.
Myth No. 3: Medical collection accounts are treated differently than other types of collection accounts when credit scores are calculated.
The truth: Medical providers, such as doctors and hospitals, don't typically report medical bills. In fact, these bills generally don't show up on credit reports unless they are sent to collection agencies, which often do report them. And at that point, there is no distinction between medical collections and other collection accounts. "When a medical debt is outsourced to a third-party collection agency, it is treated the same as other debts that are in collection," says Jeff Richardson, the vice president of public relations for VantageScore Solutions.
FICO's policy is similar: It does not distinguish between medical and nonmedical collection accounts when calculating credit scores. In an Associated Press article, a FICO representative noted that a single collection account could cause a 780 FICO score to drop by 105 to 125 points. That's enough to bump someone from a "prime" score to an "off-prime" or even "subprime" score.
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Myth No. 4: To clean up my credit, I need to pay off medical collection accounts.
The truth: Go ahead and pay those medical collection accounts if you owe them, but don't expect dramatic changes to your credit scores. The fact is, collection accounts hurt your credit scores, and that's generally true whether they are paid or unpaid, though some models may favor collection accounts that have been satisfied. "Collection accounts of lower than $250, or ones that have been settled, have less impact on a consumer's VantageScore," says Richardson. And the most recent FICO scoring model ignores collection accounts where the original balance is less than $100. Notably, most mortgage lenders use an older FICO model when evaluating applications for home loans.
Mark Rukavina, the executive director of the Access Project, asks, "What do you get when you combine a dysfunctional insurance billing system with these flawed scoring algorithms? The answer (could be) $5,000 to $6,000 in additional fees for a home mortgage!"
Eventually all collections are removed from credit reports. Under federal law, they may not be reported after seven years and 180 days from the date the consumer first fell behind on the original bill, regardless of whether the account has been paid or settled.
Is there any benefit to paying off a medical collection account, then? Potentially, yes. You may avoid a potential lawsuit over the debt. If you lose, the creditor will get a judgment against you, and that judgment will add a new negative item to your credit reports.
Is relief in sight?
U.S. Sen. Jeff Merkley, D-Ore., has reintroduced the Medical Debt Responsibility Act, which will prohibit consumer credit agencies from using paid-off or settled medical debt collections in assessing a consumer's creditworthiness. In addition, the bill will require the creditor or credit rating agency to expunge the medical debt from the consumer's record within 45 days from the day it is paid off or settled. The bill is co-sponsored by Sens. Richard Durbin, D.-Ill, Sherrod Brown, D-Ohio; Chuck Schumer, D-N.Y.; Tom Harkin, D-Iowa; and Bob Menendez, D-N.J.
Groups as diverse as Consumers Union and ACA International (the Association of Credit and Collection Professionals) support the bill.
"Consumers do not choose medical bills for illness or accidents or medical billing errors, but these small bills can end up on their credit reports and can financially devastate them at absolutely no fault of their own," says Rodney Anderson, the executive director of Supreme Lending, author of the book "Credit 911" and a champion of the Medical Debt Responsibility Act.
"Imagine a billing error ruins your opportunity to buy your home," he said. "It's not like another bill. If we don't pay our mortgage on time, we pay with a late fee. But with medical bills we often don't hear about them (until they are in collections), because the insurance companies are still in dispute with the medical provider."
The Access Project's Rukavina insists the system needs to change, "Someone who has a 780 credit score is not a deadbeat, but they could be seriously affected by a single unpaid medical bill," he said. "This cries out for Congress to pass the Medical Debt Responsibility Act as soon as possible."
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@Dental Expensess - I would respectfully disagree with your assertation. While you are quite correct about things such as simple doctor's appoointments or changes of address, unplanned hospital visits can be quite different.
When I took my wife to the emergency room, we were billed by:
1. the hospital
2. the ER doctor who saw us initially
3. the lab tech who did the MRI
4. the lab for the blood tests
5. the pharmacy for the medications
6. another pain doctor for administration of the medication
You don't go to the hospital and get "a" bill, you get several. in our case, we were there for only a few hours. When going into and ER, your focus is quite heavily on your immediate condition or that of your loved one. The first question isn't usually, "How much will this cost and will it be another bill?" The bills don't come in one nice package either. I just kept getting them over the next couple of months. I spent quit a bit of time on the phone just trying to figure out who was who and exactly what I was being billed for. They are all completely seperate for liability purposes. It is much more convoluted than a regular appointment with just one bill.
I am not a lawyer but have some insight to debts that have no asets pledged.
Just a little information from someone who is not paid or trying to get paid by the debt collection industry.
I was forced into retirement by a disease 20 years early.
I was shorted on my retirement by a corporate raider named Icahn, for about 2k a month.
I get a PGC check for less than $700 a month.
I get SS Dis for $2,200.
I had a total of 60k in unsecured credit card and signature notes. Medical bills are also included.
I live in MO and the law is that any note that has not had a payment or a promise of payment for 5 years ceases to be a debt.
They can not list any debt as a bad credit on any listing agency.
By law they must stop attempting to get payment.
I have no wages and they can not touch my retirement savings and payments.
This only works for retired folks with unsecured debt.
So if you have no wages and your cash is in retirement savings they can not recover any monies.
Another concern is how insurance billing happens and the coordination of benefits or COB takes place. Very often there are little boxes at the bottom of your invoices that say current, 30 days, 60 days, and 90 days to indicate your payment status for that particular bill. Because some insurance companies drag their feet in making payments these can sometimes go beyond reasonable time limits. I have had bills that have taken over a year to be settled by insurance companies but the outstanding credit issue remains in my name not the insurance company.
So you are inundated by a flood of mysterious bills from God knows who or why and each one must submit and receive payment from your primary and secondary insurance carrier before you can even determine what your individual liablity is. Therefore this is a flawed system and the little guy (you and I) are the ones who get stung by it. Typical yes? Only in America. LOL
Dental Expenses- actually bills being sent to wrong places does happen. I had given my address and cell number as well as my mother's address and phone number as an emergency contact when I was admitted to a hospital in December 2004. I was on my father's insurance so listed that too. I did receive a bill at my address and called my Dad, insurance, etc to figure out what was owed etc. This bill was I believe from radiology and was like $40
Anyway, in about February, I received a yellow envelope with mail from my mother which she did when anything for me got sent to her house. Inside was another bill for even more money, like $600, that had been sent two months ago to the wrong address. My mother never opened my mail, so she had no idea. She just forwarded it to me. So, I immediately called the hospital and explained that the bill was sent to the wrong address. I asked the hospital lady to tell me what info she had for me. She read it back and it was correct- my address/phone number and my mom's as an emergancy contact. I was like, ok, still not understanding how it would go to the emergency contact's house but anyway I thought at that time we had it worked out.
Well flash forward another few months and my mom calls me and tells me that some collections agency had called her house about an unpaid medical bill. I should say that my mom at this time had dial up and no cell phone so it was very difficult to get a hold of her. So, who knows how long this guy had been trying to call her. Oh, and did I mention that I had listed MY cellphone number?! Anyway, something was up with my insurance or whatever and I did call this very nice man who was a collector and everything got worked out.
Also, I had checked my credit score after this incident and the amazing thing is that small bill somehow wound up on my credit report as a collection but I have never to this day received a bill or a phone call from this supposed collections agency. Thankfully, it is now off my credit report
But the point is this never would have happened if the hopsital would have called the correct number and sent the bill to the right address. I could have more quickly gotten to the bottom of what was the issue with the insurance and gotten the bill taken care of quicker. And besides, why on earth would you send a bill to the emergency contact?! Hello, I've been calling you LOL I'm obviously not avoiding you! Please send to the correct address!
It was an utter nightmare and I am so thankful that I haven't had to go to the ER since.
The truth is....if folks would stop believing this "socialist" crap that the RepubliBilly party uses to scare Americans, we would all have Universal single-payer health care like the other civilized nations of the world. We would not even be reading this converstation, let alone trying to think of ways to outsmart the obscene corrupt for profit only health insurance industry in the US. The doctors are also totally overpaid and greedy. Most are not only doctors, but part of a corporate medical facility that have a self interest in keeping you sick and unhealthy and making money off the treatment they all know you will need.
Most Democrats are just as bad..beholden to Medical Insurance conglomerates for campaign dollars. This is the Reason we are now stuck with the Romney/Obamacare Compromise which is nothing short of a sham and a free-for-all profit machine for the health insurance industries and any other corporations involved in the US medical industry. Stop both RomObama care and also the RepubliBilly single prayer plan (pray you don't get sick and do nothing about it) by not believing the rhetoric being spouted by both political parties. Remember...no one has your self-interest at heart more than YOU yourself so use your reasoning skills and advocate the single-payer tax based medical plan where all are covered and there is no longer all this scamming and raping of the American public. Your future depends on the fruits of your reasoning skills and that my friend..is the ONLY thing you can count on.
The report that patient doesn't know they have a bill is BS. I work in insurance and billing everyday and not only does the medical facility send to the patient what they owe, the insurance company sends an EOB (estimation of benefits). I get them myself and if I get an EOB and haven't seen a final bill from the medical facility, I do my part and call them to see if there is outstanding billing. I think a lot of people hope that the billing was forgotten or disappeared. Insurance that a patient signs up with is the patients responsibility to research and ask lots of questions of what may or may not be covered. I do it myself in personal situations, it is rare that this stuff falls through the cracks. If a patient moves and they had a doctors appt, it is their responsibility to notify the insurance and the medical office of the change of address.
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