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Many US consumers will soon have their medical debt wiped from their credit reports, the three credit bureaus announced last month.
Medical debt is pervasive in the United States. The majority of people filed for bankruptcy between 2013 and 2016 have had at least some medical expenses contributing to their financial distress, according to a report by the American Journal of Public Health.
But the way medical debt is reported on consumer credit reports is changing. And those changes may make it easier for people who have dealt with the burden of unexpected medical bills to rebuild their credit. Accounts in collections on your credit reports can dramatically decrease your credit score, which makes it harder to get new credit (think auto loans, personal loans and credit cards) with reasonable interest rates.
Here’s how medical debt reporting is changing, and how you can manage medical bills to prevent lasting financial damage.
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How Medical Debt Credit Reporting Is Changing
Starting July 1, 2022, medical debt that’s been paid will no longer be included on credit reports from Equifax, Experian and TransUnion—even if it’s been on your report for several years.
In addition, the three credit bureaus are increasing the amount of time before medical debt in collections appears on your credit reports. That cushion is now six months but will be lengthened to one year.
If you’re in the process of negotiating or paying a medical debt, this can give you extra time to work with providers or collectors to find a mutually-agreeable payment solution.
Finally, beginning in the first half of 2023, the three consumer credit reporting agencies will no longer include medical debt in collections under $500 on credit reports.
Read more: How to Get Your Free Credit Report Each Week
Medical Debt Is a Huge Component of Consumer Debt
You may think of consumer debt as a result of overspending on credit cards or living beyond your means. But nearly one in 10 adults—about 23 million Americans—owe at least $250 in medical debt, according to a Kaiser Family Foundation report released in March.
“Medical collection debt often arises from unforeseen medical circumstances,” the credit bureaus said in a joint statement announcing the reporting updates. “These changes are another step we’re taking together to help people across the United States focus on their financial and personal wellbeing.”
The changes are long overdue, says Jasmine “Jazzy Mac” McCall, a credit expert who shares strategies for dealing with medical debt on her YouTube channel.
McCall says medical debt is an unexpected financial burden, and “is not a true reflection of a person’s willingness or their ability to pay back a debt.”
About one-fifth of US households couldn’t afford to pay for medical care up front in 2017, according to the most recent Census Bureau data.
Although most people with medical debt owe less than $500 per medical bill, these amounts add up. According to the Consumer Financial Protection Bureau, consumers’ credit reports reflected $88 billion in medical debt as of June 2021.
Why Medical Debt Is So Tricky for Consumers to Manage
McCall explains that it’s often difficult for consumers to know what expenses they’re on the hook for and what will eventually be paid by insurance, if they have coverage.
By the time you realize that yes, you’ll be responsible for a particular medical bill, it may already be overdue and on its way to collections.
An account that went to collections but has since been paid stays on your credit reports for about seven years after it gets sent to collections. “We’re punishing consumers for something that happened unexpectedly seven and a half years ago, that they’ve paid off,” McCall says. “They’re still being punished for it.”
Read more: How To Remove Collections From Your Credit Report
Errors in medical billing make matters worse, McCall explains. Medical bills frequently include coding errors, which could result in the patient’s financial responsibility being far larger than expected.
McCall shared an example of this: When she was in the hospital giving birth, she was given an aspirin. But the bill she received later indicated that instead of being charged for one aspirin (about $4 per pill) she was charged for the entire bottle (around $500).
The credit reporting system “forces patients and their families to pay bills whose accuracy they doubt,” said Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra in a statement on March 1. The announcement from the three credit bureaus came shortly after the CFPB announced it would scrutinize credit bureau practices regarding medical debt and investigate potential improvements to the medical billing and collections system.
How to Deal With Medical Bills Before They Go to Collections
McCall offers four tips for managing medical bills.
1. Request an Itemized Bill
If you weren’t expecting a bill for medical services or the total on your tab is higher than you anticipated, ask the billing department for more information.
Even if you can afford a medical bill, McCall says to request an itemized statement that shows all the billing codes for the care you received.
If something doesn’t match your experience or the explanation of benefits you received from your insurance company, ask the billing department how you can dispute the charge.
2. Ask for a Cash Discount
Once you’re sure your bill is correct, ask the hospital if there is a cash discount for paying in cash, or if there’s a payment plan available, McCall says.
If you don’t have enough in your emergency fund to pay your medical bill, a payment plan through your health care provider can be a better option than turning to a credit card or personal loan to cover the cost.
Your health care provider may offer a no-interest or low-interest payment plan to spread out your payments over time without the added cost of high interest rates.
3. Seek Financial Assistance
Many hospitals employ advocates who help patients with financial difficulty, McCall explains. Ask the medical provider’s billing department if there’s a financial aid program for people who have a hard time paying their medical bills.
Some hospitals will write off your debt completely or dramatically reduce the amount you owe.
McCall says billing departments are used to hearing patients say, “I don’t have the funds to pay this” or “I don’t think I was billed correctly.” Don’t be ashamed to ask for help.
4. Check Bills That Have Already Gone to Collections
If you have medical debt that’s already gone to collections, check to make sure the debt collector hasn’t added extra fees to your total due. To find the fee schedule for your original medical bill, you may need to consult documents you signed at the hospital or health care facility.
McCall explains medical debt often gets sold among debt collectors, and this can be done several times over the life of the debt. Some debt collectors will try to add new fees onto your bill, she says, “in an attempt to scare you into paying the debt quickly or paying more of the debt.”
Adding fees beyond those spelled out in the original contract is a violation of federal law.
If you discover a debt collector has added illegal fees, report it to the Federal Trade Commission, CFPB, and your state attorney general. If you find the extra fees within a year of the collector breaking the law, you also have the option to sue the debt collector to have the fees removed—but you’ll still be responsible for the original debt in collections.
Aaron Hurd also contributed to this article.