Got medical debt? So do a lot of people: About one in five U.S. households have medical-related debt, according to a new study from the Consumer Financial Protection Bureau. And medical collections debt can do a number on your credit score (as in, a lower number).
But change is coming, in three ways:
As of July 1, 2022, paid-off medical collections debt will no longer appear on your credit report.
The time frame for unpaid medical collections debt’s appearance on your credit report will double. Consumers will have one year, rather than six months, to deal with insurance companies and/or negotiate with healthcare agencies before the debt is officially reported.
Finally, in the first half of 2023, the three major credit reporting agencies (Equifax, Experian and TransUnion) will not list medical collection debt that’s $500 or less.
This is huge for those who’ve fallen victim to what the CFPB calls “opaque pricing” and “complicated insurance or charity care coverage and pricing rules.” (Rohit Chopra, director of the CFPB, refers to it as “a doom loop.”) Those who are experiencing medical emergencies, as well as those who have chronic illnesses, may feel they have no choice to shoulder the costs associated with getting care.
No surprise, then, that as of Q2 2021, 58 percent of bills that had gone to collections and were on people’s credit records were medical bills.
What these changes will mean
If you owe money to a healthcare provider, it won’t affect your credit score right away. You’ll have longer to straighten out medical billing and any issues therein.
Once it goes to collections, however, it shows up on your credit report. There it will stay, for up to seven years, until you pay it off. Until then, it can drag your credit score down by as much as 110 points.
The new rule means that once you’ve taken care of the debt, it will no longer appear on your credit report. And if it were a bill of less than $500, it won’t appear at all.
“If someone has paid off their medical collections, this removal will help their credit scores,” says Ted Rossman, senior industry analyst at Bankrate. This is particularly true of older FICO models used for, among other things, federally backed mortgages.
A continuing trend
Rossman calls these changes to medical debt reporting “the continuation of an ongoing consumer-friendly trend.”
In the past few years, he notes, paid medical collections have been disregarded by the latest FICO and VantageScore algorithms. They also place less emphasis on unpaid medical debt than they do on other kinds of debt.
Now, possibly thanks to the CFPB’s interest, the bureaus will remove paid debt altogether. That’s great news for anyone who’s ever had to deal with major medical debt, which can take a long time to iron out. (Especially if your recovery is slow and you don’t have anyone to help you wade through the bills.)
Help with medical collections debt
Very specific laws protect consumers against unscrupulous debt collectors, some of whom completely ignore those laws and will try to trick you into acknowledging debt that you may no longer even owe.
Credit expert Gerri Detweiler has a great – and free! – resource for consumers in debt. “Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights” helps overwhelmed consumers stand up for themselves.
To be clear: No one is saying you should walk away from your obligations. However, you should:
- Be certain you really owe this debt (Detweiler’s book could help you determine this)
- Check for insurance billing errors (it happens).
- Look for healthcare provider billing errors (these also happen)
- See if you can negotiate the debt (Sliding-scale fees? Apply for discounts with help from a hospital social worker? Ask!)
To download this free financial resource, visit Detweiler’s “books” page. “Debt Collection Answers” is the first book on the list.
Readers: Have you had any medical debt issues, or victories?
Related reading:
This is huge! Medical billing/collection/insurance is almost a legal scam, in my opinion.
First thing, insurance companies can and do deny claims they should cover, and will only cover when pushed back upon. I had this confirmed by someone whose insurance job it was to answer calls about claims. This adds a lot of time to getting the claims paid.
Second, coding is key to what is and isn’t paid, and coders are human – and I’ve had many mistakes in my bills. I was told I owed $900 because a simple wellness checkup was miscoded. I got that straightened up before I had to pay, luckily.
Years ago, I was thrown into collections for a hospital debt that I had been paying on, with no advance warning. My payments were being credited to the wrong account even though I included the account number and name on my check. The hospital admitted their mistake, but said it was impossible to remove me from collections in their system – once they sent a bill to collections, they “couldn’t” retrieve it. The collection company said they couldn’t remove me from collections unless the hospital ordered my removal. I had to pay the collection company for the rest of the debt.
More recently, I fought with my insurance for 8 months over a bill that my book clearly stated they would cover except for a co-pay. I had paid the co-pay but was being billed for over double the co-pay amount on top of that. I got no less than six different answers as to why I was supposed to pay for more than my book stated. I was about to be sent to collections over the bills, so I had no choice but to pay the money, to stay out of collections. Eventually, I won the argument with my insurer, and all the money was repaid to me, but I came close to having my credit harmed by the insurer’s denials.
I am going to look up the link you provided. Thanks!
Wow. You’ve really been through the wringer. Thanks for sharing your story as an object lesson.
A good article, Donna. I’ve been catching up on reading some of your older articles. In fact, I haven’t seen you in quite a number of years. A friend told me you were still blogging. I remember when you first started on, I believe it was MSN Money. And when you were living, I think it was in Seattle? So a lot of things must have changed in your life since then over a decade ago. I’ll be looking forward to reading your future articles as well. And we’re definitely going to need them in this time of Great Recession, if not the starting of a depression.