Research and Statistics

Congress considers relief for credit damage from medical bills


Debt caused by medical bills is special and should wait 120 days before it’s reported late on credit reports, according to legislation introduced in Congress

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Confusion over medical bills has become an epidemic that is infecting the credit scores of millions of American credit card users and other consumers. Now, lawmakers say, relief may be on the way.

Several remedies have been proposed in Congress, including the latest possible cure: A recently filed, bipartisan measure that would prohibit bill collectors from reporting medical debts to credit bureaus for at least 120 days.

U.S. Rep. Gary Miller, R-Calif., says that his Accuracy in Reporting Medical Debt Act, co-sponsored by U.S. Rep. Carolyn McCarthy, D-N.Y., would give consumers more time to figure out those baffling medical bills and insurance statements — and pay only the proper amounts — before their credit scores sustain significant injury.

“Every year, families in my district, and across the country, are hit with confusing and costly medical bills,” Miller said in introducing the bill. “The personal and financial toll of dealing with a medical emergency or serious illness is difficult enough. Unfortunately, for many patients and their families, our nation’s complex and broken health care system inflicts additional pain by damaging their ability to access credit.”

Medical bills mind-boggling
Confusing and costly medical bills? Take another look at that insurance statement.

Description of service. Amount billed. Amount allowed. Amount paid. Deductible amount. Copayment amount. Coinsurance amount. Final column: You owe … $53.07. But wait, what’s this Remark No. 2?  “In-network provider utilized. Therefore no patient responsibility.”

So do you owe the money or not? Currently, as you struggle to figure it out, your credit score is in danger of catching cold. Unpaid medical debt of any amount that is reported to credit bureaus can slice 100 points off your credit score, even if the bill is being disputed. That would make credit cards and loans more difficult to obtain and more expensive to carry.

“Given the negative impact of the premature reporting of medical debt, we introduced this bipartisan legislation to help make certain that only real unpaid debt, not medical billing errors or bills pending with insurance companies or being disputed, are reported to credit bureaus,” said Miller, who serves as vice chair of the House Financial Services Committee.

120-day grace period

The Miller-McCarthy bill would prevent debt collectors from reporting medical debts to credit bureaus for 120 days — if you tell the debt collector that you’re still discussing the bill with the insurance company or that you didn’t even know about the medical debt or that you have applied for financial assistance to deal with the medical debt.

Importantly, the bill collector can still come after you during those 120 days, but the firm cannot report any of this action to credit bureaus during those four months.

Representatives of the bill-collecting industry, which prefers to call the process “accounts receivable management,” said they were studying the legislation, but wanted to emphasize the importance of collecting properly owed bills.

“The recovery of medical debt plays an important role in our national, state and local economies,” said Mark Schiffman, director of public affairs for ACA International, which represents more than 5,000 third party collection agencies, asset buyers, attorneys, creditors and similar entities around the world. “Whether a hospital, clinic, physician or other health care professional, recovery of rightfully owed debt is vital to maintaining America’s health system.”

He said the funds are “used in many important ways, including business operating costs, maintaining facilities, investment in new technologies and paying employee salaries.

“We have not formally announced neutrality, support or opposition to the legislation that’s been introduced,” he said. “ACA International understands the need for changes to federal law pertaining to credit reporting of medical debt but is concerned about unintended negative impacts to both consumers and small businesses.  Of specific concern is duplication of federal and state laws and ambiguities, subjecting debt collectors to predatory litigation, an issue that already plagues our industry.”

Medical debt problems widespread
In any case, from the standpoint of patients and consumers, this is a big problem.

According to a coalition of consumer groups, 73 million Americans experience medical billing problems or shoulder medical debt at any given time. At the same time, a study conducted for the American Medical Association found errors in nearly one of every 10 medical claims processed by the nation’s largest insurance companies.

Nearly 26 percent of Americans have overdue medical bills, according to a study released in May 2013 by the FINRA Investor Education Foundation. Mississippi (41.4 percent), North Carolina (36.4 percent) and Kentucky (35.3 percent) have the largest percentages of medical debtors; Hawaii (13.6 percent), California (14.5 percent) and Massachusetts (17.3 percent) have the lowest percentages.

Other efforts
Another effort to deal with this issue has been proposed in the U.S. Senate by Sen. Jeff Merkley, D-Ore., and in the House by Rep. Maxine Waters, D-Calif. The Medical Debt Responsibility Act would require credit agencies to remove medical debts from credit reports within 45 days of payment.

That measure is an amendment to the existing Fair Credit Reporting Act. The Miller-McCarthy measure is an amendment to the Fair Debt Collection Practices Act. Both are widely supported by consumer groups and by some business groups.

“Creditworthy consumers are being denied credit or are paying higher interest rates or higher fees when purchasing a home loan or obtaining credit for credit-related products, due to medical debt on consumer credit reports,” said a statement of support issued by 19 groups, including the Consumer Federation of America, the NAACP and the Mortgage Bankers Association.

“The Medical Debt Responsibility Act goes a long way in ensuring that creditworthy consumers obtain the credit they have earned,” the groups said.

See related:15 tips for paying medical bills, Is your doctor checking your credit report?

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