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Medical bills can wreck credit, even when paid off

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  • Medical bills can wreck credit, even when paid off

    March 4, 2012

    CHICAGO (AP) — Mike and Laura Park thought their credit record was spotless. The Texas couple wanted to take advantage of low interest rates, so they put their house on the market and talked to a lender about a mortgage on a bigger home in the Dallas-Fort Worth suburbs.

    Their credit report contained a shocker: A $200 medical bill had been sent to a collection agency. Although since paid, it still lowered their credit scores by about 100 points, and it means they'll have to pay a discount point to get the best interest rate. Cost to them: $2,500.

    A growing number of Americans could encounter similar landmines when they refinance or take out a loan. The Commonwealth Fund, a private foundation that sponsors health care research, estimates that 22 million Americans were contacted by collection agencies for unpaid medical bills in 2005. That increased to 30 million Americans in 2010.

    Surprisingly, even after the bills have been paid off, the record of the collection action can stay on a credit report for up to seven years, dragging down credit scores and driving up the cost of financing a home. An estimated 3.4 million Americans have paid-off medical debt lingering on their credit reports, according to the Access Project, a research group funded by health care foundations and advocates of tougher laws on medical debt collectors.

    Among them are Nathen and Melissa Cobb of Riverton, Ill., who tried to refinance their home last year. They didn't qualify for the loan because of $740 in medical bills that had been sent to a collection agency. The Cobbs were surprised because the bills — nearly a dozen small copayments ranging from $6 to $280 — had been paid before they tried to refinance. The collection action took their credit score from good to mediocre and is likely to mar their credit report for years.

    "I'm not one of those people trying to ditch out on my bills," 34-year-old Melissa Cobb said. "I'm really frustrated."

    Medical bills make up the majority of collection actions on credit reports, and most are for less than $250, according to Federal Reserve Board research.

    The Parks had no idea a billing error they'd sorted out a year earlier — they never actually owed the $200 — could affect their credit. They didn't know the bill for a copayment on a PET scan Mike needed had been sent to a collection agency.

    "We've prided ourselves in having impeccable credit. We worked hard to establish that," said Laura Park, a 51-year-old office manager married to a 53-year-old firefighter. They are going ahead with the home purchase while trying to fix their credit report.

    "I'm very upset," Park said. "It's going to be a nightmare and who knows how long this is going to take to resolve."

    Matt Ernst, a vice president at Mortgage Lenders of America in Overland Park, Kan., said medical collections frequently turn up on credit reports.

    "We see a ton of them," Ernst said. They have an impact on financing, he said, but even he didn't realize how much until he learned that someone with a FICO score of 680 — which is considered good, but not excellent — will see their score drop up to 65 points because of a medical collection.

    "I didn't know a medical collection would hammer it that hard," Ernst said. "Our investors require a 620 to even get a loan."

    It's a problem for insured and uninsured alike. Outright billing mistakes, confusion over whether a claim will be paid by insurance and disputes between insurance companies and doctors — all can lead to medical bills being sent to collection agencies.
    Congress is considering legislation — the Medical Debt Responsibility Act — that would require credit agencies to delete paid-off medical debt from credit reports within 45 days.

    "We're not talking about somebody buying a big screen television and not having the ability to pay. This is debt incurred because of a health condition. That makes medical debt unique," said bill co-sponsor U.S. Rep. Don Manzullo, an Illinois Republican.
    The bill has bipartisan support in the House, said co-sponsor U.S. Rep. Heath Shuler, a North Carolina Democrat. Shuler said the health care industry sends delinquent bills to debt collectors quicker than any other industry.

    "If it wasn't an industry that sent it straight to collections, we wouldn't be having this conversation," Shuler said. A Senate version was introduced last week.

    For Illinois breast cancer survivor Lisa Lindsay, a $280 medical bill led to state troopers showing up at her home and taking her to jail in handcuffs.

    Like the Parks in Texas, she, too, said it started as a billing mistake. Her hospital told her the radiology bill would be covered because she qualified for a charity care program. But the radiology doctors' office sent the bill to a collection agency and, despite Lindsay's protests and the paperwork she kept sending, the matter ended up in court.

    Lindsay believed that eventually the documentation would catch up with the bill and be settled. She went to court and told a judge her story. Later, she missed a court date — she said she was never informed of it — and that's when the state troopers showed up. Lindsay, a 46-year-old teaching assistant from Herrin, Ill., ended up paying more than $600 because legal fees had been added to the original amount.

    "I paid it in full so they couldn't do it to me again," Lindsay said. She recently testified at a hearing on aggressive debt collection practices in Illinois.

    Refinancing a home loan can be affected too by unpaid medical bills — or the appearance of unpaid medical bills.

    Iraq veteran Steve Barnes and his wife, Tara, were refinancing their home through a VA program when they found out from their mortgage banker that nearly $600 in unpaid medical bills had brought down their credit scores. It means they'll have to pay an extra $1,700 in additional fees to the lender to get the lowest interest rate.
    Bills for treatment last fall related to his wife's cancer had been turned over to a collection agency while Barnes was still talking with his insurance company about what would be covered, he said.

    "We pay our bills," said Barnes, 33, the postmaster in Nocona, Texas. "As soon as they were brought to our attention, we paid them." But the collection could stay on their credit reports for seven years, even though it's now paid.

    Debt collectors support the legislation in the House, according to ACA International, a trade association. A key foe of an earlier bill was another group representing the nation's credit bureaus. The Consumer Data Industry Association, which hasn't taken a position on the revised bill, said that lenders need to see a consumer's patterns of behavior over time and even paid-off medical debt is relevant to whether the consumer is a good risk.

    Most hospitals and physician groups use collection agencies to go after late bills after 60 or 90 days, rather than hiring more staff. It makes financial sense to share the amounts collected with an agency. "If you don't collect anything, it's worth zero," said Richard Gundling of the Healthcare Financial Management Association.

    Hospitals started relying on debt collectors in the 1980s, said Chicago-based health care consultant Jim Unland.

    "When the numbers of uninsured started to grow significantly, hospital financial staffs had the perception they were getting overloaded" with delinquent bills, Unland said. "It became easier to turn these bills over to collection agencies."

    The Affordable Care Act, President Barack Obama's health care law, bars tax-exempt hospitals from using "extraordinary collection actions" until it has made "reasonable efforts" to determine whether a patient qualifies for financial assistance. But it's still unclear how that will be interpreted and whether reporting late bills to a collection agency would be considered extraordinary, Unland said.

    Barnes, the Texas veteran, said he and his wife have learned something: how quickly medical bills are sent to debt collectors. "It will really happen in a blink of an eye and you won't even know it."
    Filed BK 7 Pro Se: August 2010 341 Meeting: September 2010
    November 2010
    Closed: January 2011!!!

  • #2
    I can relate to this in many ways, but I will just tell two stories:

    #1 'Hub had a radical prostatectomy, October 2004. We made numerous payments on things not covered by the insurance. One particular bill, I do not remember what it was for, we had paid down to about $1000.00. All of a sudden, we got a 'nasty-gram' stating that we had broken our agreement to pay this bill. 'Hub fired his own nasty-gram back, stating that we had paid as agreed, and the the breech of contract was on the part of this character contacting us in the first place.

    We enjoyed BK-ing that debt, because the company decided to be a horse's rear end.

    #2 I had a nasty fall in august 2007, and broke my right arm, and fractured my left knee. I had excellent service, and paid as much as I could through COBRA insurance, and then we filed Dec. 28, 2007.

    While we were in BK, the medical provider, sent this debt to a CA. The CA attempted to get this debt prioritized above that of the IRS. That motion went no where, of course. Then, once our BK had been discharged, they still kept coming after us. To which I sent a copy of our Discharge Order, and a C and D letter to them, with a cc to our trustee.

    That was the end of that. The pity of it is, I would like to have repaid my caregivers, for all they had done for me in 2007. But their billing offices, and collection agencies, were such 'horses' patooties', that we BK them, w/o another thought.
    "To go bravely forward is to invite a miracle."

    "Worry is the darkroom where negatives are formed."


    • #3
      All the people in the article have one thing in common: they're trying to buy or refinance a house. For those of us who are happy to live in a rental apartment, and don't really give a flying &^*% about the credit score, there's not a whole lot of incentive to pay ANYTHING toward these "nuisance debts". For example, my credit is in the low 500's. If I get another collection account, it's not going to get significantly worse, so who cares? And last time I checked, there's no debtor's prison here in Arizona.


      • #4
        Originally posted by bcohen View Post
        All the people in the article have one thing in common: they're trying to buy or refinance a house. For those of us who are happy to live in a rental apartment, and don't really give a flying &^*% about the credit score, there's not a whole lot of incentive to pay ANYTHING toward these "nuisance debts". For example, my credit is in the low 500's. If I get another collection account, it's not going to get significantly worse, so who cares? And last time I checked, there's no debtor's prison here in Arizona.
        Be careful here. The lady was arrested for missing a court date -not for being in debt.


        • #5
          Your credit score also affects your insurance rates in many states.
          Although Mr. Spock and I find that completely illogical.

          Keep On Smilin'


          • #6
            This is so typical of the healthcare industry.
            Doctors practices hire the cheapest labor they can get since every dime they spend is a dime less in their pockets.
            Thus billing and collections is a half-assed nightmare.
            I often wonder how much money is really spent on the healthcare billing mousetrap, what with layers upon layers of billing, insurance, flexible spending, etc.
            And yet somehow the illegal aliens just go to the ER and get taken care of for free.

            Oh by the way, it goes without saying that when you do have these kind of collection accounts, you negotiate pay for deletion of the tradeline.
            A paid collection item isn't hardly any better than unpaid, same thing with judgments.
            filed chapter 13..confirmed...converted to chapter 7...DISCHARGED!


            • #7
              We are fortunate to have 3 insurances from both my husband and my employments and Tricare as retired military. It takes time to run the gauntlet but usually all are paid in full. We had one instance when we had a $40 copay that was to be covered by our 3rd payer, Tricare after the other two had paid but the doctor's office failed to submit the claim. Tricare said it was covered and would be fully paid when submitted. It was turned over to Collections and everyone is right, it doesn't matter that it was paid in full. It stays on the credit report. Obviously, we paid that last amount before we got to Tricare the next time, after the Collections letter, because we were afraid of another ding on our credit report. After Tricare paid, we asked the hospital to reimburse us for the amount we paid in advance that Tricare ended up paying. Of course they refused. As consumers, it seems like blackmail to force us to pay for bills that are covered by insurance (which is increasingly slow, requires additional documentation, has coding errors that must be corrected etc) to avoid being turned over to collections within the 60-90 day period.....then being told that the eventual insurance payment will just be applied to the write-off. Damned if you do and damned if you don't.


              • #8
                Originally posted by keepmine View Post
                Be careful here. The lady was arrested for missing a court date -not for being in debt.
                That's what I don't get. I was always under the impression that if you don't show up for a court hearing in a civil matter, the worst that would happen is you'd lose the case by default.
                Filed Pro Se on 8/4/11 (No Asset, Chapter 7)
                Redeemed Automobile ProSe (722 Redemption),Discharged on 11/3/11


                • #9
                  They can only send the cops after you when you refuse the so-called debtors exam as part of judgment collections.
                  You really have to have your head totally buried in the sand and/or just throwing out your mail for that to happen.
                  Which I can understand, it gets so frustrating dealing with this crap.
                  filed chapter 13..confirmed...converted to chapter 7...DISCHARGED!


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