Sick and Broke in America: When Medical Problems Infect Your Financial Health

07/24/2011 - 11:07 in AngelesHealth
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With more than 50 million Americans uninsured, and an estimated 20 million woefully underinsured for all but minor health concerns, it's no wonder that 60% of US bankruptcies are due to unpaid medical bills, i.e. 'medical bankruptcy'.....a condition credit agencies have little or no sympathy for.Imagine getting ready to refinance your house to get those monthly payments down, and the bank asks for more than $9,000 in closing costs due to an unpaid medical bill...even if the bill is less than $400. That's what happened to Darryle Watson of Texas: here's how you can prevent it from happening to you.

A recent Census Bureau report estimates the number of Americans without health insurance has grown from 46.3 million people without coverage in 2008 to 50.7 million people in 2009 - an increase of almost 10 percent in just one year. Given the state of the jobs market and overall economy, that number is likely to be higher in real-time (July 2011).

Given these statistics it is no surprise that filing for bankruptcy due to medical bills is one of the most common reasons for filing bankruptcy. For the same time frame reported above (2008-2009) CNN reported that medical bills prompt more than 60 percent of U.S. bankruptciess, with seniors and single mothers being at the highest risk.

Nearly half of all collection accounts that appear on consumer credit reports are unpaid medical bills, according to a study by the Federal Reserve. To add insult to injury, an estimated 14 million Americans are struggling with medical bills that they believe were sent in error to collection agencies, according to the Commonwealth Fund, a nonprofit health care research group.

So why is medical debt so often fraught with error?

For one, medical fees often are incurred when people are least able to process or track such data, e.e. when patients are confronting emergencies or difficult diagnoses while balancing the demands of complicated lives; medical bills are notoriously asynchronous to the real-time timeline of tests, office visits and surgeries, often arriving months after the event in an irregular flurry with unclear referents that require research just to understand what is being billed and why.

When medical bills do go unpaid, doctors, hospitals and diagnostic testing labs typically do not report the debs to the Big Three credit reporting agencies — Experian, TransUnion and Equifax - as would, say, your auto loan or credit card company. Instead, common practice is to rapidly sell unpaid bills - even as patients are actively attempting to unravel/understand the payment - to collection agencies.

Collection companies may not bother tracking down payment for small bills e.g. less than $50, but the unpaid balance nevertheless is reported to the Big Three, leaving a black mark on your credit score...and that black mark can be fiendishly difficult to track to the source of the origination point of the unpaid bill.

As well, these black marks are as stubborn as a blood stain. A collection attempt has a lifespan of seven years regardless of how quickly the bill is paid off.

Further, Experian's director of public education Rod Griffin says collections have a more serious impact on the consumer's credit score because they are weighted more heavily by the Big Three than other unpaid bills.

Given the penalty for a collection action is equally punitive regardless of the status of the payment, coupled with the large proportion of erroneous/contested amounts, it's no wonder the rate of nonpayment and 'medical bankruptcy' is so high.

Bankruptcies due to medical bills increased by nearly 50 percent in a six-year period, from 46 percent in 2001 to 62 percent in 2007, and most of those who filed for 'medical bankruptcy' were middle-class, well-educated homeowners, according to a report that will be published in the August issue of The American Journal of Medicine.

Legislation passed by the House of Representatives in September, and now in front of the Senate, require paid medical bills to be expunged from consumer credit reports after 45 days, a move executive director of consumer advocacy group Access Project Mark Rukavina says will go a long way toward solving the medical debt-credit report conundrum.

How to Prevent Health Care Bills From Ruining Your Credit

1. Deal with the bill/billing question right away, with the provider - before it can go to collections. But be prompt - most providers are quick to sell unpaid debt, even for pennies on the dollar, often after just one late payment- not because they're coldhearted, but because laws about debt reporting. Reporting delinquencies directly to the Big Three credit reporting agencies puts the provider in a position as creditor, and therefore subject to a host of creditor rules and regulations. Selling debt to collection agencies is a way around these onerous bureaucratic processes that most hospitals say the do not have the manpower to deal with efficiently anyway.

“Always keep in touch with the billing office of your doctor or other provider during any type of delay.” ~Gerri Detweiler, personal finance expert at Credit.com.

Consumers who take this step actually have a good chance of succeeding, because providers typically sell unpaid debt at just pennies on the dollar. Many providers will work with you on a payment plan for the simple reason it will enable them to collect more in revenue.

2. If your bill has gone to collections, ask the collection agency if the information has been submitted to the Big Three. If yes, offer to pay the bill promptly if the agency promises (in writing) to have the bill removed from your credit report. If not, work out a payment plan in which the agree (in writing) not to report you. Because the collections agencies, too, prefer a paid bill to an unpaid debt, this strategy often works - but make the agreement before you pay, while you have leverage.

3. If you are one of the unfortunate 14 million each year whose credit report is besmirched with erroneous unpaid medical bills, all is not lost - you still have options. By law, credit reporting companies must investigate legitimate complaints, so it's important to submit to each agency (in writing) the nature of the discrepancy, including as much proof as you can muster, e.g. copies of any documents that prove your point. For unresolved disputes, consumers are, by law, allowed to submit a 100-word statement of dispute or explanation of account telling your side of the story; e.g. you can explain that the bill was submitted in error, that you are negotiating payment with an insurance company — or whatever the case may be.

RESOURCES

Experts suggest consumers should check their credit report at least once a year. You can get a free annual copy of your report from all three reporting agencies here: annualcreditreport.com.)

For more details on how to dispute credit report errors, go to www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.

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