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Health care costs are rising, but so are out-of-pocket health care costs for consumers. And for many, that means a new crop of medical debt and the debt collectors that follow.

The annual health care costs for a typical family of four covered under an employer-sponsored preferred provider organization (PPO) plan is now at more than $23,000, according to the 2014 Milliman Medical Index. Since the beginning of the recession, the average cost to employers increased by 52% (an average of 6% per year) while health care costs borne by workers’ families grew by 73% (average of 8% per year), according to the Centers for Medicare and Medicaid Services. It also found that families spent $3,787 in out-of-pocket costs – deductibles, co-payments or co-insurance – when they actually accessed needed care. In total, it is estimated that Americans will spend $324 billion in out-of-pockets costs in 2014.

For many providers, the fees owed by patients are the most difficult to collect. While systems may be in place for providers to collect from Medicare, Medicaid and large private insurers, the systems may not be as efficient when it comes to collecting directly from patients. Meanwhile, patients may find the communication from providers to be confusing, leaving them uncertain of whether they – or the insurance company – are supposed to pay the bill.

As a result, providers commonly call on collection agencies for help in collecting patient fees. Once collection agencies are involved, however, they typically report the medical debt to the credit bureaus, which generally means trouble for patients — trouble that can be costly.

According to Richard Cordray, Director of the Consumer Financial Protection Bureau, “Sometimes they (consumers) do not know what they owe because of how complicated the billing process can be. Other times they may not even know they owe anything, thinking that their insurance will cover the bill. Sometimes the debt is caused by billing issues with medical providers or insurers. Complaints to the Bureau indicate that many consumers do not even know they have a medical debt in collections until they get a call from a debt collector or they discover the debt on their credit report.”

Additionally, the Consumer Financial Protection Bureau recently issued a report that found many credit scoring models may understate the creditworthiness of consumers who have medical debt in collections by about 10 points, and for those who have repaid medical collections in full by 16 to 22 points.

The health care and debt collection industries are working on addressing this problem.

Debt Collectors Reach Out

In January, the Healthcare Financial Management Association and ACA International issued a report acknowledging that patients typically want to resolve their medical debts, but often get caught up in the confusing collection process. So the industries are aiming to establish best practices that will eliminate the element of surprise when it comes to medical bills.

The industries propose educating patients on the financial assistance programs that are available to them, as well as informing them of how to navigate the account resolution process. Patients can look forward to “patient-friendly billing,” which, the standards dictate, must be clear, concise, correct and easy for patients to understand. Providers and their collection agencies will also be asked to track and share consumer complaints, and collection agencies will be asked to comply with established ethical debt collection standards.

What You Can Do Now

If you get a medical bill and are unsure whether you are supposed to pay it, do not ignore it. Instead, contact your health care provider and/or insurance company. If you need assistance in paying medical bills, communicate this to your health care provider. Remind them of the HFMA/ACA International best practices and ask if they have adopted them.

If you are unsure of whether medical bills are on your credit report, go to AnnualCreditReport.com for a free copy of your report. Finally, if you have a complaint about a medical bill that has been sent to collection, let the CFPB know. Go to the agency’s site and describe your problem.

The industry and regulators are both monitoring what is happening with medical debt collection. Take control of your situation, be informed of the best practices for medical account resolution and exercise your consumer protections. Who knows, your actions might change the way medical bills are collected and reported.

[Editor’s note: In addition to checking your credit reports, you can also monitor your credit scores for changes that may indicate a possible debt collection account being added to your credit reports. There are free resources for checking your credit scores, including Credit.com, where you can also get an overview of your credit report and a plan to help you rebuild your credit.]

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