Protecting Your Credit Score From the Medical Bill Maze
Protecting Your Credit Score From the Medical Bill MazeBy WALECIA KONRAD - New York Times, 12/17/2010IF there is one place where your health and your finances collide, it is on your credit report. That is something Darryle Watson learned the hard way.
Mr. Watson, 52, an automotive service adviser in Willow Park, Tex., and his wife, A. J., tried last fall to refinance their mortgage. But instead of getting a big break on his monthly house payments, Mr. Watson found out he would have to pay more than $9,000 in closing costs because of the couple’s low credit scores.
Mr. Watson was flabbergasted. Both he and his wife are meticulous about paying their bills on time, he said.
The culprit was four unpaid medical bills that the Watsons say they never knew they owed. The largest was for less than $400; one was for about $15. According to the credit report, the bills had been sent to a collection agency. But Mr. Watson said he had never received a notice from a doctor or a collection agency about any of the bills.
Plans to refinance have gone out the window, as Mr. Watson now spends his time trying to unravel what, if anything, he owes and to whom he owes it.
“The thing that is most annoying is that we do the right thing, pay our bills on time, really try to stay on top of it, and when we have the chance to save a little bit of money, instead of being rewarded, we’re being punished,” Mr. Watson said.
An estimated 14 million Americans are struggling with medical bills that they believe were sent in error to collection agencies, according to the Commonwealth Fund, a nonprofit health care research group. Nearly half of all collection accounts that appear on consumer credit reports are unpaid medical bills, according to a study by the Federal Reserve.
Why the startling numbers? Medical debt differs in significant ways from, say, an auto loan or credit card bill.
For one thing, fees often are incurred when patients, coping with difficult diagnoses or outright emergencies, are least able to track them, and the bills can arrive for months afterward in an irregular blizzard from a variety of sources. Often it’s difficult for patients to know what insurers have paid and what still is owed.
And when medical bills do go unpaid, doctors, hospitals or other medical providers rarely report the debts directly to the big three credit reporting agencies — Experian, TransUnion and Equifax — as most creditors would. Instead, they are quick to sell unpaid bills to collection agencies for pennies on the dollar.
A bill can go to collections even as the patient tries to discuss payment with a provider or insurance company. If the bills are small, collection companies may not bother trying to track down payment. But they will nonetheless report the unpaid balance to the credit agencies, said John Ulzheimer, president of consumer education at the credit monitoring firm SmartCredit.com and a former employee with credit scoring agency FICO and credit reporting agency Equifax.
Because of privacy laws, it can be difficult to determine from the vague information on your credit report where these unpaid bills originated. What’s more, unpaid bills in collection can be some of the most damaging items on your report.
“Collections are weighted more heavily than other unpaid or late bills,” said Rod Griffin, director of public education at Experian. “They will have a more serious effect on your credit score.” Once these black marks show up, they stay on your credit report for seven years, even if you pay the bill.
Legislation passed by the House of Representatives in September would require that paid medical bills be removed from consumer credit reports after 45 days. “This bill would go a long way toward solving the medical debt, credit report dilemma,” said Mark Rukavina, executive director of the Access Project, a consumer advocacy group in Boston, and co-author of a large study on medical debt.
The likelihood of the bill passing the Senate before the end of the year is slim, Mr. Rukavina added, so consumers shouldn’t count on legislative relief anytime soon. In the meantime, here’s what you can do to help prevent health care bills from ruining your credit.
THE PROVIDERS Doctors, hospitals, labs and other medical providers don’t want to be in the business of extending credit. If they were to report delinquencies directly to the credit reporting agencies, the providers would be subject to a host of rules and regulations that creditors must follow when reporting debts. To avoid those, the providers prefer to rely instead on collection agencies.
It is far easier to resolve a billing problem with the provider than with a collection agency. “Always keep in touch with the billing office of your doctor or other provider during any type of delay,” said Gerri Detweiler, personal finance expert at Credit.com. “You want to convince them not to send the bill to collections.”
You have a good chance of succeeding, because the provider will receive much more in payment if you pay your bill than they will if they turn over the account to a collection agency, Ms. Detweiler added.
If you have worked out a payment plan with a hospital or other provider, be particularly diligent about paying on time or contacting the billing office if you cannot. Hospitals are notorious for sending bills to collection agencies after even just one late payment, Ms. Detweiler said.
THE COLLECTORS If your bill has already gone to collections and you hear from a collection agency, offer to pay the bill promptly if the agency promises to have the bill removed from your credit report.
“The collection agencies want to get paid, so usually this strategy works,” Mr. Rukavina said. “But if you pay first and then ask to have the bill removed, you won’t have any leverage.”
Sometimes, said Ms. Detweiler, the agency may be calling you before they have sent information to the credit reporting agencies. Be sure to ask. If that’s the case, work out a payment with them with the promise that they will not report you.
Anytime you negotiate a payment plan with a doctor or hospital, or if you negotiate to have a bill that has gone to collections taken off your credit report, get the agreement in writing. Should the bill end up in dispute, you will need to be able to show written proof of the agreement.
THE CREDIT REPORT Check your credit report at least once a year. (You can get a free annual copy of your report from all three reporting agencies at annualcreditreport.com.)
If you find unpaid medical bills on your credit report that you don’t believe are correct, write to each of the credit reporting agencies explaining the error and including copies of any documents that prove your point. Credit reporting companies must investigate legitimate complaints. For more details on how to dispute credit report errors, go to www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.
If the problem is not resolved, you are by law allowed to submit a statement of dispute or explanation of account telling your side of the story. Here you can explain that the bill was submitted in error, that you are negotiating payment with an insurance company — or whatever the case may be. These statements are limited to 100 words, so you’ll need to be concise and persuasive.