How routine medical bills can harm your credit rating

by Don McCanne, M.D.

Our fragmented, dysfunctional system of paying medical bills is having a major impact on personal credit ratings. Half of all accounts reported by collection agencies now come from medical bills. The credit record of one-fifth of Americans is affected, and many of us are unaware of it. Are people so broke that they can’t pay their medical bills, or is something else going on here?

There are two major factors at play here. One is that with flat wages and increasing household costs, many people do have problems paying all of their essential bills, and medical bills are moved to the bottom of the stack. When payment of medical bills is postponed, or perhaps not paid at all, they are commonly sent to collection agencies, eventually appearing on the debtor’s credit report. Now that high deductibles are being used more to shift costs from payers (employers or government) to patients, this phenomenon is even more common.

The other factor is how people with good incomes, who are meticulous with management of their personal finances, end up with dinged credit reports because of medical bills. It is often due to the administrative complexity of the system we have of paying medical bills—through private insurers who make payments based on whether the providers are in or out of network, on whether or not the products or services being billed are even covered by the plans, and on how much the deductible and coinsurance are and what charges can be credited against the deductible.

Typically the individual receives an explanation of benefits, which may be difficult to decipher since often some of these questions still remain unanswered. Billings may start to come in from various health care providers but without adequate explanation. When the patient inquires as to why the amount was not applied to the deductible, or why the amount seems to be for out-of-network providers when this provider is in-network, or for whatever reason, the patient is often given a temporizing response. When more statements are received that fail to address concerns such as the deductible, further efforts to correct the problem are often met with reassurance. When nothing further is heard, the patient assumes the matter was cleared up. Only later when a collection agency begins to hound them or when they find their credit report includes unpaid medical bills do they discover that the matter never was resolved.

Add in further complexities such as when a person has primary coverage perhaps through Medicare and secondary coverage through a Medigap plan, or a person had a change in coverage coinciding with the medical services provided. Then straightening out who is responsible for which portions of the charges can be a monumental task.

These highly responsible individuals with previously excellent credit records are understandably angry. They tend to look elsewhere for blame—the physician’s office or billing service, the hospital’s billing department, the insurer’s claim processors, the credit agency’s disregard of registered protests, or perhaps the employer who provided such a screwed up health plan in the first place,

Single payer advocates know where most of the blame really lies. It is with our political leaders who insist on perpetuating this highly inefficient, fragmented system of financing health care instead of enacting a single payer national health program. This botched up system of medical billing is only one manifestation of the profound administrative excesses that permeate our system. Ironically, all of this extra administrative detail in handling medical billings doesn’t even work well. You would think that if we were going to be paying much more in administrative costs so that the insurers could do a “better” job than a single government payer in handling our claims, we would be demanding much better performance from them. But no, keep the government out and blame everyone else.

In typical D.C. fashion, our legislators continue to look for solutions that would increase regulatory oversight to prevent unfair damage to the credit ratings of conscientious individuals, though the legislators are receiving expected push back from the credit industry. What we do not need is more administrative oversight piled on top of an administrative boondoggle. Instead we need to replace our health care financing system with an efficient, improved Medicare, with first dollar coverage, that covers everyone. Credit scores dinged by medical bills then would become a quaint historical oddity.

Suggested reading:

Rosenthal, E. When Health Costs Harm Your Credit, New York Times, March 8, 2014

Tags: Health Care Disconnects, Health Care Reform, Don McCanne, M.D., Medical bills; collection agencies; credit ratings; private health insurance; high deductible plans;, Medical bills, collection agencies, credit ratings, private health insurance, high deductible plans, Medicare, Medigap, single-payer, administrative costs