Medical debt can hurt almost as much as the condition causing it. As many as 43 million Americans have a medical bill in collections that has negatively affected their credit, according to the Consumer Financial Protection Bureau. The average amount in question was only $579, compared to $1,000 for non-medical debt. Even with the relatively low amounts at issue, the CFPB found that, for 15 million people, that medical debt was the only problem on their credit report.
“More people who typically would have been a good credit risk are now saddled with big bills,” commented the policy director at the Healthcare Financial Management Association.
In fact, about half of all debt on U.S. credit reports is medical debt. This is partly due to the growth in high-deductible and high-copay insurance plans that create substantial out-of-pocket expenditures when you get sick. These plans put many ordinary people at risk for a rather large bump on their credit whenever medical concern arises.
Unfortunately, there’s no standardized process for when or how medical debt will be collected, according to Kaiser Health News. Some clinics and hospitals won’t try to collect until a debt is six months past due, while others will send it to a collection agency after 30 to 60 days. For some people, that means the debt goes into collection before they’re done sorting out what insurance will pay.
Yet people with low scores from medical debt are unlikely to default on other debts, according to a spokesman for the credit scoring agency FICO.
Good news for those whose credit reports have been hurt by medical debt
Two legal settlements have brought about a significant rule change. One was a 2015 case settled between the attorney general of New York and the three major credit reporting agencies — Equifax, Experian and TransUnion. Then, 31 other state attorneys general made a similar settlement with the credit reporters. The new rules created by the settlements will be instituted nationwide.
Beginning on Sept. 15, all three major credit agencies will wait 180 days before adding a medical debt to an individual’s credit report. That six months will give people enough time to resolve insurance issues and make payment arrangements, even if they’re a little bit late.
In addition, the agencies will take active steps to remove medical debts from credit reports once it has been paid, rather than waiting for the creditor to initiate its removal or for the consumer to dispute the debt.
These changes should give consumers some breathing room and keep their credit from driving them further into debt. If you need more help, please keep in mind that medical debt can be wiped out in bankruptcy.