Tom: You are here this morning to talk about medical bills and credit – but all bills impact your credit, don’t them?
Mellody: Of course they do Tom, but there are signs that medical bills are playing an out sized role in damaging the credit history of many Americans. So this morning, I want to talk about the problem, and steps to take to ensure that you are not falling victim to this new trend.
Tom: Why are healthcare or medical bills different?
Mellody: A big reason that medical bills are different is that there is no real standardization among the industry, and yet there are so many different touch points. Put more simply, there is no specific billing cycle. Take your credit card bill as an example: you are billed monthly, and you are expected to pay off your credit card within 30 days. This is not the case in the medical industry, as the costs – and the payments – are larger and multifaceted. Some billing systems may give you two months; others may put you on a payment plan. So this lack of standardization presents challenges.
But there is another piece of this story, too, and that is the information gap. When consumers receive bills from their doctors or from laboratories they have never heard of, they can be lists of tests run, acronyms for various processes, or they can be comprised of what can only be described as indecipherable medical terminology. We have all been there. Because of this, many consumers do not know what they are being charged for, or if their insurance covers this, so they simply ignore it.
So these two factors coupled together really seem to separate healthcare bills out from others in many people’s minds, so they are less likely to be routine, and therefore routinely paid.
Tom: And this leads to big credit problems?
Mellody: It really can, tom. More and more, we are seeing signs that this fractured billing process and the confusion it creates is damaging the financial reputation of many Americans. basically what is happening is that it in the time that it is taking consumers to figure out who owes what when – which can run into weeks and months – the medical debts that are behind can be reported rapidly to credit agencies, and often without any notice to the people who are responsible for the debt. And even small unpaid bills can severely damage credit ratings.
According to the New York Times, a mortgage initiator in Texas recently looked at the credit records of 5,000 applicants and found that 40 percent had medical debt in collection, with the average around $400. Forty percent! That is a very big number just for medical debt. additionally, the new 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. This means that these bills may prevent you from getting a car, leasing an apartment or even getting a mortgage. Those are certainly big credit problems.
Tom: What should our listeners do?
Mellody: The first thing that people should do is simply be looking out for these medical bills. After any medical visit that requires a procedure that is not routine, such as an annual checkup, make sure you are aware of what communications you should be receiving. Talk to the billing person at your office to get a clear understanding of where invoices will come from. Secondly, information is power. One of the problems with many procedures is that you don’t know what it will cost until after the fact, so make sure to learn as much as you can about the costs before you undergo any medical treatment. Afterwards, take the time to inquire with the entity that sends you each bill. Ask questions if you are unclear about any charges – both with the billing entity and with your insurance, and be prepared to contest any outrageous charges. Finally, create a schedule for payment that ensures these bills are paid on time. If you can’t afford this, work with the office or lab to create a payment schedule. The main point here is to know what you owe, know why you owe it, and make preparations so you are not missing payments that you were not aware of.
Tom: Is this a problem that regulators are trying to address?
Mellody: Both congress and the protection bureau have been trying to protect consumers’ credit scores through various proposals, including differentiating medical debt from other forms; erasing the missed payments once they have been paid off or simply not having medical debt reported to credit agencies at all, for example. So far, the efforts have been stalled as the credit industry has fought successfully against them, saying they could protect people with legitimately bad credit histories and debt issues. But it also has to do with their bottom line. Currently, health care bills comprise the single biggest source of business for collection companies, according to consumer protection agency officials. So for now, the best thing you can do is be informed about your healthcare expenses, make sure you are asking the questions, and be ready to pay those bills on time!
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