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The medical billing process can wreak havoc on both providers’ and patients’ sense of financial security. The process is often fraught with complexities that make the process lengthy and confusing.
The reality is that those difficulties are a relevant concern for patients facing medical debt, and for the providers administering care. Often insurance providers bring costly claims against practices, and are unwilling to pay their portion of customer’s bills.
In the United States, the majority of individuals, at least at some point in their lives will experience medical debt, and the complicated process associated with handling claims and insurance can increase the odds that the debt wont be paid in a timely manner. Whether those complexities or communication issues are to blame, or patients simply cannot pay, their credit score can be impacted.
Medical debt can have a serious impact on one’s credit, but it is also distinct from the rest of the billing world, operating within its own unique set of rules.
Historically, in the United States there has not been any type of special grace period for those who are facing medical debt repayment issues. So no matter what kind of complexities slowed the process, if the process was delayed, that meant the account moved to medical debt collections and a decreased credit score resulted.
Michelle Andrews wrote for NPR that “A recently released report says medical debt is the No. 1 reason consumers reported being contacted by a collection agency.” She goes on to note that it’s the reason that 59 percent of individuals cite for being contacted by an agency.
But 2017 became a year that credit reporting bureaus altered the timeline that governs the process.
Experian explained shortly before the changes took effect, “On September 15, 2017, the three major credit bureaus—Experian, Equifax and TransUnion—will add a 180-day grace period for consumers to resolve any medical debt before it appears as a past due amount on their credit report.”
The bottom line is that this change will make it more difficult for a medical debt to harm an individual's credit, even if their account would have traditionally moved to medical collections.
When hospitals and doctors are unable to collect patient balances they do not normally report the incident themselves. However, they do turn those bills over to collections, who in turn will report the bills to credit reporting companies. The problem with healthcare costs that are unexpected or poorly prepared for is that they can rapidly become as much or more of a financial burden as they are a health burden.
The difficulty also arose because providers weren’t sticking to any standardized process. Instead, they would send bills to a collections agency using their own digression and timeline.
"Without a standardized process, some bills get sent to collections because they're 30 or 60 days past due as opposed to six months," Julie Kalkowski, executive director of the Financial Hope Collaborative at Creighton University, told CNN Money.
A 2014 report by the Consumer Financial Protection Bureau, noted that for 15 million Americans the only negative portions of their credit report was medical debt.
They also concluded that, “The addition of any paid or unpaid collections tradeline of at least $100 to a consumer’s credit report will reduce a score of 680 by over 40 points and a score of 780 by over 100 points.”
The real world cost of that is that for many borrowers the consequences of having a medical debt sent to collections is that they will have to pay a higher interest rate to borrow, if they remain eligible to borrow at all.
There is hope even for those who do have overdue bills. It seems that the current system will allow for borrowers to work towards a future wherein they are less impacted by their unpaid medical bills.
According to TIME’s Elizabeth O’Brien “How badly will those unpaid medical bills hurt your credit score? That depends on which credit-scoring model your lender is using. The newest FICO Score, FICO Score 9, treats medical debt less punitively than prior versions. But many lenders still use FICO Score 8, which generally treats all debt equivalently.”
The changes have paved the way for alternative methods of recovery for patients with outstanding medical debt.
Repayment plans: Providers need past-due receivables to be paid. For those who know that they will not be able to make their payment on time, they may be able to contact their provider before the plan goes to collections. Even if the account has already been sent to collections it is worthwhile to see if a patient can negotiate with a provider.
Removal of paid account from credit report: Even after the six month grace period, if insurance does end up paying for some of the bills still negatively impacting an individual’s credit score, the bills can be removed from an individual’s credit score.
Ultimately, the complexity surrounding medical billing and revenue recovery means that the process will never be simple for those involved. For patients and medical providers alike, it is vital to understand how unpaid claims can impact credit. It is also valuable to see how the credit reporting industry has adjusted in an attempt to better accommodate a system that is complex and easily complicated.
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