How long should medical debt haunt your credit report?

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Recently, Forbes[i] and other outlets have been reporting on upcoming changes to the way medical debt reporting is handled by credit bureaus. What does it all mean?

Essentially, it comes down to three changes, which I’ll mention first and then break them down.

  1. Paid-off medical debt will no longer be included in credit reports/scoring.  Once paid-off, they drop it.
  2. For debts you’re still paying/negotiating, you’ll get twice as much time to sort it out.  Instead of six months, you’ll have a year before the debt will start showing up and impacting your score.
  3. Finally, for small medical debts, those under $500, the agencies will not report those debts at all.

What is this, another give-away for fools who buy stuff they can’t afford or cannot use?

No.  This isn’t like someone buying a car they can’t afford or even taking out student loans for a degree that has virtually no career opportunities.  Medical debt, at least in the United States, is different.

First of all, there’s often nothing you can do in advance to prevent it.  Yes, I know, some diseases and conditions are the result of poor choices in diet, exercise or risky behavior, but often times, it comes down to the way our system works.  We still have people who got zinged with “out-of-network” provider charges or just vital (but uninsured) services.

Once you have a debt in collections, the impact on your credit could make it hard for you to find employment, or a new apartment or vehicle.  Some credit cards can adjust your interest rate based on your credit score, so if you’re already struggling to clear a medical debt, having your existing expenses go up can be a serious problem.

And what if part of the debt is disputed or questionable?

Another important topic covered by Forbes has to do with improper billing.  This might mean fees incorrectly charged by the doctor or facility.  It might also be improper fees added as the debt collectors pass your account around.  Forbes covers both, but as a part of our ongoing advocacy program on #HealthConsumerism, we want to draw special attention to the accuracy of your bills, and possibly to the reasonableness.

You may be able to make a case to have a debt reduced if what you were billed could be seen as unreasonable or far exceeding the UCR[ii] (Usual, Customary and Reasonable) amount.  BUT FIRST, make sure the bill itself is accurate.  If they say you were in a private room, were you?  If they say you were treated by Dr. X, was she really there?  They said you were given 125 aspirins, but you only remember one (an actual example from the article).  You don’t want to set up a payment plan, however reasonable the terms, to pay for services, drugs or equipment you didn’t receive.

In addition to the resources listed in the article, there are books like “Never Pay the First Bill” (my colleague Lance posted a review on it) that can help you in those situations, but even more importantly, you need to learn enough about healthcare to be an “Informed Consumer.”  This has lots of steps, including some modest education, but the single most important thing is to ask questions.  Questions like:

  • “What does this treatment/procedure do?”
  • “Is this covered by my insurance?”
  • “How much will this cost (if it’s not fully covered)?”
  • “Is this the best solution or are there alternative treatments to consider?”

A little personal insight here.

Doctors are highly trained in their field, but that doesn’t make them insurance specialists.  My wife had severe back pain and the doctor told us “I’d like to get an MRI to see if something might be compressing the nerves in your spine.  But first, we need to do an X-ray.”  I asked if X-rays can observe nerve tissue. She told us “No” but that the insurance company wouldn’t pay for the (more expensive) MRI unless they got an X-ray first.  And besides she told us “It’s inexpensive, probably less than $50.”  But then I said, “We’re paying cash.  We don’t need any unnecessary treatments, even if they are inexpensive.  Let’s proceed directly to the MRI.”

If we had just left well-enough alone, and deferred to the doctor’s “medical recommendation” (which wasn’t actually based on medical training at all, but her limited knowledge of insurance reimbursement) we would have incurred another charge.  You want the best outcomes, not unnecessary treatments.

Bottom line

These changes appear to be good news for responsible consumers who have already paid their debts or are working to do so.  Instead of carrying that stigma for seven years, they can clear their accounts much more quickly.  And this impacts an estimated 70% of medical debt!  That’s huge!

If you are one of those people who might be helped by this change, we urge you to take action to get your credit report updated.  It could save you thousands of dollars in interest or opportunities.  But even if you’ve never had any medical debt, we recommend you educate yourself and become a savvier healthcare consumer, BEFORE you ever need a hospital!

 

Endnotes

[i]  Forbes.com, Apr. 5, 2022, https://www.forbes.com/advisor/personal-finance/medical-debt-removed-from-consumer-credit-reports/

[ii] UCR or Usual, Customary and Reasonable, is an industry term that basically means ”The amount paid for a medical service in a geographic area based on what providers in the area usually charge for the same or similar medical service.”

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