Home > 2012 > Personal Finance

Is Your Health Insurer Ruining Your Credit?

Advertiser Disclosure Comments 1 Comment

If you have ever puzzled over a hospital or doctor bill and whether you are supposed to pay it, then join the ranks of millions of Americans equally confused by medical bills. One national study found that 40% of American adults do not understand these bills well enough to know why they owe the outstanding balance or if it is correct.

Other studies, including those by the American Medical Association, have revealed that one of every five claims is inaccurately processed by health insurers. To add to the confusion, many bills from hospitals and doctors arrive months after treatment, further clouding the reason for the bill and the amount due.

Many people are tempted to wait for clarity. They set the bills aside with the hope that their insurer will pay the claim. This is a big mistake, since delaying payment can result in the medical bill being turned over to a collection agency. Once there, it will likely lead to future headaches.

300 Billion Reasons to Pay Attention to Your Medical Bills

Total healthcare spending in America amounted to $2.6 trillion in 2010. Of this total, $300 billion was paid out of pocket, for example, through deductibles and co-payment fees. The growth in out of pocket spending accelerated between 2009 and 2010 as more people switched to higher deductible plans or increased co-payments in exchange for lower premium costs.

Paying more up front for healthcare is becoming commonplace for insured patients. But keep in mind; providers want to be paid for their services. When they do not receive prompt payments, they initiate action similar to other businesses and send the bills to collection.

Once in Collection, Doing the Right Thing is Not Enough

Contrary to what many believe, medical debt can hurt your credit score. Thirty million Americans are contacted annually by collection agencies for unpaid medical bills. Patients frequently claim confusion led them to allow bills to go past the due date or be sent to a collection agency. According to studies published in the Federal Reserve Bulletin, more than half of all collection accounts on credit reports are medical in nature.

Collection agencies routinely report medical bills to the credit bureaus. They view all collection accounts as “delinquent” with no regard for why the bills were sent to collection. Many people, upon hearing from a collection agency, promptly pay the medical bill in full. After doing so, they are often surprised to find that these accounts stay on their credit report.

Medical collection accounts can linger for up to seven years, even with a balance due of ZERO. Collection accounts are reported in the credit history section of a credit report which accounts for 35% of a credit score. Because of this, these fully paid “delinquent” medical bills can sting. One or two recent medical collections can lower a credit score by 50 to 100 points. Such a significant reduction in a score will dramatically increase the cost of a mortgage or the interest rate on a credit card.

Avoiding Medical Bill Problems

So, if you have an outstanding medical bill, what can be done? First, if you are confused by a medical bill, do not ignore it. Contact the provider immediately to discuss the bill. If you are not certain whether you or your insurer should pay the bill, inform your provider that you are working with your insurance company to get the bill paid. Assure them that you will pay your share. Ask that they refrain from sending the bill to a collection agency while you resolve the issue.

If the bill is large and you need to pay it off over time, again, discuss this with your provider. Doctors and hospitals often allow patients to pay their bills off over many months, even interest free. Some provide financial discounts to income eligible patients. If your hospital or doctor provides a discount or allows you to pay over time, ask them to put the agreement in writing. If they do, be sure to maintain timely payments so that the bills do not end up being sent to collection.

Addressing Medical Bills that were Sent to Collection

If you have a medical bill that has already been sent to collection, first make sure that you are obligated to pay it. Contact the provider and/or the insurer to make sure the insurance company has paid all claims and that the provider has applied all available discounts. Then make arrangements to pay your share and ask the agency to remove it from your report after it is fully paid.

If your medical bill had been inappropriately sent to collection due to confusion on whether you or the insurer was responsible for payment, this is not truly a credit issue. Work with the provider or their third party collection agency and ask that the account be deleted from your credit report once it is paid in full.

Systemic Change May Require an Act of Congress

Many healthcare providers recognize that bills can be sent to collection in error and may agree to delete them from a credit report. However, they are not necessarily required to so do.

The problem of medical bills ruining people’s credit has come to the attention of the U.S. House of Representatives. Congressmen Heath Shuler (D-NC) and Don Manzullo (R-IL) have put together a sensible bi-partisan proposal to address this problem. They feel that medical debt is unique and that it deserves to be treated differently than other types of debt. So they decided to take action by introducing HR 2086, the Medical Debt Responsibility Act. The legislation requires that medical bills (of less than $2,500) that are fully paid off or settled be removed from a consumer’s credit records within 45 days.

This straightforward proposal does not fix the medical billing system but it provides relief for those who’ve paid off their medical debts. It enjoys support across the political spectrum spanning from Rep. Ron Paul to Rep. Barney Frank and has dozens of co-sponsors. Congress should immediately enact this proposal and protect families from any further financial harm due to medical collections.

Be a Savvy Consumer

Illness or injury can result in hardship and medical bills. Ignoring these bills can create problems. Exercise your consumer protections. Keep tabs on the content of your credit report. Pay your bills. And do not allow confusion around your medical bills to ruin your credit and threaten your financial future.

Image: bolistan, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Ron McLaughlin

    This article highlights some of the biggest problems that occur between providers, patients and the insurance companies that abstract and complicate the medical billing process. Basically, when it comes to collections, there is a wide spectrum of strategy that businesses can draw from to get money rightfully owed. The best firms work with those who have medical debt to arrange payment plans that will effectively bring in revenue for the provider while helping to restore the consumer’s credit rating. The worst companies simply demand payment, leaving even the hugest billing errors on the books and often, as discussed in this article, leaving black marks on a patient’s credit score even with a zero balance payoff. The take-away for providers is that it’s a good idea to partner with honest and transparent third parties like collection agencies, but smart doctors take this a step further and anticipate how new ways of handling medical bills can lead to less delinquencies and bill collections. Doctors who work with proactive medical billing services or other partners can educate patients more about their possible resulting medical debt from services provided, and even work to collect more money up-front, so that patients don’t end up with unclear balances that may surprise them later. It’s all part of making the medical billing process more transparent to the patient, so that more patients will pay their bills on time instead of simply giving up and allowing their debts to go to collections. Ron McLaughlin, CEO, enhancedmedicalbilling.com.

  • Pingback: Is Your Health Insurer Ruining Your Credit? | Credit.com News + … | Medical Debt Collections()

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team