Like most people, you are vigilant about paying your bills — credit cards, mortgage, cell phone, etc. Easy to understand, easy to pay. But medical bills have a different trajectory. These bills you receive, peruse the amalgam of codes and charges and set them aside until you have time to clarify the confusion. You wait for your insurer to pay its yet unknown portion of a hospital’s unknowable fee. With the complex process that determines your ultimate payment, it often takes months to understand what you actually owe.
The byzantine process of medical billing is not just affecting your health care but it may be dinging your credit score as well. While the bills themselves frequently take months to sort out, medical debts can be reported rapidly to credit agencies, and often without notification. Even small unpaid medical bills can severely damage your credit rating. And you were just about to buy a house. A recent look at credit records of 5000 mortgage applicants indicated that 40 percent had medical debts in collection, with the average $400, even worse, most applicants were unaware of their debt. The Federal Consumer Financial Protection Bureau has noted that half of all accounts reported by collection agencies now come from medical bills and the credit record of one in five Americans is affected. A single medical bill reported to a credit agency can easily become a millstone around your neck. It will take a long time to make that right, even once the bill is paid.
The problem is accelerating for a couple of reasons. Charges are rising and insurance companies require more patient outlays in the form of higher deductibles and co-payments. Doctor and hospital bills are generated far away by computer, collection notices are filed automatically by the systems if payment is not recorded. Various proposals have been put forward to differentiate medical debt — it could be erased once it has been paid, for example, but so far, the credit industry has fought successfully against such efforts, health care bills are the largest source of business for collection companies.
With medical expenses, unlike most other purchases, you generally don’t know the price the doctor or hospital will charge in advance, and the subsequent bills and insurance statements — so called explanation of benefits — are often layered in obfuscation and pressure tactics. Consider the situation of a Pennsylvania man whose $2,770 bill for an echocardiogram offered a “prompt payment” discount of 20 percent if paid in 21 days — meaning a discount for not asking questions concerning a bill for a test he was told would be under $300. . . . There are many more examples but we won’t explore them here.
The Consumer Financial Protection Bureau has been studying the impact of medical billing on credit scores since 2012, acknowledging that unpaid medical bills in collection “frequently end up on consumer credit reports” as an out growth of “very complex and confusing systems of figuring out who owes what after a medical procedure.”
Reported medical debts are a very subtle “Gotcha.” Big medical procedures with lots of charges are not easy to sort through but will have your attention. It is the small ones — for dental work, a routine exam with lab work, etc., those that insurance was supposed to pay — that will sneak into the record undetected. They are most aggravating, very hard to remove as a bad debt from your credit record and may make you unacceptable to a lender for a mortgage.
At the moment there is no easy way to deal with this situation. If you are thinking of buying a house, a car, or refinancing, it would be wise to carefully review your credit reports beforehand. If there are medical debt surprises, start by understanding and addressing them as early as possible. At the very least you will h ave your records in order and an explanation ready for your mortgage lender.
Addapted from a New York Times article by Elisabeth Rosenthal.