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How an auto accident can wreck your credit

Medical bills can cause a financial pile-up months after you are in a car wreck.

By Jul 15, 2014 11:18AM
This post comes from Gerri Detweiler at partner site on MSN MoneyImagine you’ve been in a car accident. You have health insurance as well as coverage for medical bills through your auto insurance -- or through the policy of the person who was at fault -- so you aren’t worried about the bills. But to your shock, you find out months later that some of your medical bills have been turned over to collections and your credit has been damaged.

Car Accident © Stockdisc, CorbisHow can that happen?

There are several reasons why this scenario -- which is not uncommon, unfortunately -- occurs. The first is that auto insurers typically don’t pay medical bills as you incur them, but rather wait until all the bills related to the accident come in. In the meantime, your health care providers don’t want to wait months -- or even years -- for your claim to be paid. Unpaid balances are turned over to a collection agency.

The second is that medical providers are often reluctant to bill your health insurance, which may pay negotiated rates that are less lucrative than payments from an auto insurance settlement.

There are ways, however, to decrease the odds that these bills will wind up in collections and ruin your credit. Here’s how.

Insist on using health insurance first

The first thing you may want to do is to ask the medical provider to bill your health insurance. (Of course, whenever possible you want to use a provider that participates in your health insurance network since that usually means lower out-of-pocket expenses.) If they say they won’t or can’t do that, you may need a lawyer or health plan administrator to intervene.

“Legally, they should not [refuse your health insurance] -- they are obligated to honor your health insurance for all treatment you need, and there is no guarantee that you will even get compensation for your injuries,” personal injury lawyer Thomas J. Simeone with the law firm Simeone & Miller, explained in an email. “However, they know that they will likely receive more from an injured person’s personal injury claim than from health insurance, so they refuse the health insurance.” As a result, he says, “outstanding balances with medical offices can build up quickly and medical offices can damage your credit by sending your file to a collections agency or even filing suit.”

Because just one collection account can lower your credit score by 50, 75, or even 100 points or more, it is essential that you stay on top of these bills  and, just as important, your credit. You can monitor your credit for free at some sites online ( is among them; make sure any service you use is truly free) so that if something like this does hit your credit reports, you’ll know.

There’s another reason to ask them to bill your health insurance right away. If your medical providers fail to bill your health insurance and later it turns out you can’t recover through auto insurance, it may be too late to bill your health insurance.

“If you have health insurance, definitely attempt to use it,” Simeone said. “You can still recover the full amount of your medical damages from the responsible party -- they will not benefit (by paying less) because you had health insurance and used it. If the medical office refuses to accept health insurance because your treatment involves an accident or you have a lawyer, you may need to get on the phone with the office manager and explain to them that under your plan, there is no exception for coverage for that situation. Also, explain that you may not even obtain a recovery -- there are no guarantees in law, on even the best cases -- and if you wait to submit your bills to health insurance, you may not be able to do so years later when you learn you will not receive a recovery.”

What you should try to pay

Of course, even the best health insurance may not cover everything. You probably have co-pays and/or deductibles that you are responsible for paying. If that’s the case, you may be better off paying those amounts yourself in order to prevent bills from being turned over to collections.

If it’s impossible for you to cover those out-of-pocket expenses while you wait for an insurance settlement, another option may be for you or the doctor’s office to ask if the provider will accept “assignment,” meaning that their fees would be paid out of any settlement you receive. The downside of this is if you don’t receive a recovery, you are liable for the bills.

Still another option: Ask your lawyer for a “letter of protection.” That basically assures medical providers that you are attempting to collect a settlement with which you intend to pay your balance and may keep your bills from being sent to collections. “This often is enough to buy you time to make periodic payments or buy time until your case is resolved,” Simeone said. “Creditors will often feel comfortable waiting for repayment if they know we are aware of their debt, that there is a reason it is not paid (i.e., the accident), and that we will attempt to obtain payment.”

If dealing with the medical bills from an auto accident may feel as overwhelming as the accident itself, you may want to talk with a personal injury attorney who should be familiar with the options for helping clients protect their credit. But plan on monitoring your credit regularly and staying involved in the process. That way, you hopefully won’t be dealing with damage to your credit long after your injuries have healed.

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Jul 15, 2014 1:58PM
As a working middle class American I say, take your credit ratings and shove them where the sun don't shine. The banks and financial institutions have forgotten who made them wealthy and had to bail their dumba$$es out, which they didn't need the bail out. It was just another scam to get richer. If it ever came down to actually having to save the banking institutions, I say let them burn.
Jul 15, 2014 5:14PM
Insurance is the biggest ripoff in the usa besides the healthcare industry. Absolutely no protection from the federal government from these thieves.
Jul 15, 2014 5:12PM
You can definitely avoid the collection situation. Keep close tabs with both insurance companies and let the hospitals and doctors know that this is going to be a long road of payment due to multiple claims issues; it's not a direct bill system and they are used to it. I've never had a problem as long as when I see a bill, I pick up the phone and have a discussion.

I just get angry when I see premiums go up for something that was not my fault or watching the welfare trash just walk away from all bills and act like they are entitled to 'free' health care.

Jul 15, 2014 4:40PM
The Auto Insurance "Liability" setup is a TOTAL JOKE; the insurance companies play a game of "Drop Coverage" and never claim that they are Liable without filing a lawsuit against the other party when you need the insurance coverage immediately.  I was hit by a car and I could get a chiropractor on the basis of using my car insurance but I explained that the accident occurred in a liability state and it would be the other party's insurance to be "correct".   But, then I had doctor's that wouldn't even accept the car insurance at all and I switched over to my medical insurance and then that got cancelled immediately...again, really stuck with no actual coverage at all.  Getting the Credit reports trashed is caused by some real BAD ACCOUNTING and the worthless insurance set up.  Both are really B-A-D.
Jul 15, 2014 6:03PM
They will think of anything and everything to damage your credit.  It's (credit) a sham and is even more so now than it was years ago. 
Jul 15, 2014 5:49PM
We need address the insurance industry in general not just the healthcare insurers.
Jul 15, 2014 6:32PM

You mean my BomaCare with the 8k deductable won't cover me>?


Imagine that...

Jul 15, 2014 5:19PM
I can't speak for all states, but in my state, in the event of an accident, your auto insurance is primary over medical insurance. I don't believe that health insurers can be compelled to cover the cost of the health claim. Also, once a auto carrier admits liability in the accident, which in the majority of cases happens fairly quickly, especially if the party that caused the accident received a ticket, the auto insurer will generally pay this medical bills as they come in. This is the general rule and of course there are exceptions, but they are just that, exceptions, not the norm. If you happen to insure with a cut rate auto insurer (think of the ones that advertise constantly), it could be more difficult to get them to admit liability. In that case, this article would have more validity.
Jul 15, 2014 5:04PM
Most health insurance policies make their coverage secondary to any Medical Payment Coverage available from the auto insurer.  That coverage must be exhausted prior to their coverage taking effect.  In addition, subrogation (similar to reimbursement) payments for auto Medical Payment Coverage, in most states, can be reduced by the cost of recovering the money from the person who caused the injury.  This is known as "The Common Fund Doctrine."   In addition, the "Made Whole Doctrine" may have applications.  See your attorney for details. 
BAD ADVICE WARNING!! CHECK WITH YOUR LOCAL PERSONAL INJURY ATTORNEY FIRST, but in my opinion, this article contains some of the STUPIDEST, WORST ADVICE I have ever seen on the internet.

For example, In Pennsylvania, required auto insurer medical payments coverage automatically covers all medical costs from any auto accident, regardless up fault, up to the limits purchased on the policy, without any deductibles. In Pennsylvania, that mandatory minimum is $5,000, but most people should buy at least $100,000 of this coverage, called "First Party Medical Benefits" Med-Pay" or Personal Injury Protection (PIP). Only after that limit is exhausted should it go to your secondary health care coverage, and only then, to your personal injury claim, if any, which MAY be subject to a lien from your secondary health care coverage, and lastly, and ONLY LASTLY, to yourself as personally responsible.

You should NEVER start paying out of pocket for medical bills when you don't have to, just to protect the possibility of a reduction of a fake so-called "credit rating" because an insurer "might" not pay fast enough for a provider. Also, you should NEVER be willing to invade a personal injury settlement to pay medical bills if you don't absolutely have to by law to satisfy a lien when there is other insurance available. This article appears to be written by an insurance company or medical care providers, not a real person with consumer's interest in mind. but DON'T TAKE MY ADVICE AS GOSPEL.

Check your local laws in your jurisdiction, and consult a personal injury attorney, if necessary, but in my opinion, much of this article contains advice that, if followed, will DAMAGE THE AVERAGE CONSUMER.   
Jul 15, 2014 5:25PM
This is why people should learn about federal law, using the "black law" dictionary...which all of our law "words" are based in. You will son find out that you dont NEED a drivers license to drive...and therefore no need for registration either,... aside from corporations needing them....but as an individual "traveller", you dont need one... 
That being is a good thing, unless you have the assets and $$$ to cover any unforeseeable accident that may occur! 
Jul 15, 2014 6:30PM
In Arizona and  probably most other states, if you need medical treatment as a result of an accident, always use an in network health service provider who has a negotiated contract with your personal medical insurance company. They cannot refuse to accept you as a patient with that insurance company or honor the agreed rates, if they do, your insurer is liable for your medical expenses beyond those agreed rates. Your insurer will provide that information long before those bills become due and will intervene if there are any billing amount problems. Any money received for medical treatment from your insurance company can be used toward your out of pocket costs. Money from the other party in the form of a medical settelement is yours. You still had co-pays and co-insurance costs that were out of pocket. They cannot penalize you for having and using your own medical insurance and in spite of what the hospital or doctor will claim the money for medical bills will go to you as the injured party.
Jul 15, 2014 6:43PM
Don't ruin your credit!  That's the only thing that allows you fat hog Amerikans to buy anything since you are so in debt.  You should pay your bills off and quit printing money.  Losers.  Go Canada!  Out of debt and laughing at the US.
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