Medical debt is a problem: You do not have to be a victim of a broken system

Consumers should demand to know more about their medical bills.

Do you know what is on your credit report? If you don’t know, you can find out how to access your credit report by visiting MIMoneyHealth.org and clicking on the link for your credit report. If you have ever had a past-due bill go into collections, you may find it on your report. According to the Consumer Financial Protection Bureau (CFPB), nearly one-third of consumers have one or more collections tradelines on their credit reports. The CFPB refers to accounts in collection as “collections tradelines.”

In a recent study published by the CFPB, it found that over fifty percent of all collections tradelines are medical collections. On page eight its report, the CFPB states, “Generally, the credit industry interprets the presence of a collections tradeline above a certain minimum amount on a consumer’s credit report as a signal that the consumer is experiencing difficulty or reluctance in meeting his or her financial obligations.” However, for those who have only medical collections on their account, half have otherwise clean credit reports. In other words, unlike those who have collections tradelines from a variety of debts, those who have just medical debt collection tradelines may be unfairly lumped in with the broad group of consumers “experiencing difficulty or reluctance in meeting” their obligations.

The CFPB defines “clean” as those with no delinquency greater than 30 days. In general, the more collection accounts one has, the higher the delinquency rate. However, this is not true for those with just medical collections. The delinquency rate has no significant increase even in cases of multiple medical accounts in collection. Why such a discrepancy? For a detailed discussion, consult the study. However, one great contributor to the problem may be the confusion that surrounds medical billing. In fact, some people do not even realize that their medical bills are in collection.

When one seeks medical services, the cost for the service is not often disclosed. If the person has insurance, a claim is submitted and reviewed by the insurance company. Depending on the coverage, the insurance company may pay nothing, a portion or all of the claim. What they pay may depend on who provided the service or where it was received; there are many factors and not everything is uniform. By the time the consumer receives a bill, it may be for part of the service or all, and often the consumer will receive multiple bills from multiple providers for the same event. As the CFPB study concludes, “Both the complexity and confusion that accompanies the medical billing process and the variety of financial conditions of the consumers who incur medical debts indicate that the appearance of a medical collections tradeline on a credit report … are less predictive of future delinquency.”

If you are one of the consumers with medical collections or if you want to avoid the steps that will lead to such a problem, look at two recent articles (part 1 and part 2) by Extension educator, Jinnifer Ortquist, for tips on dealing with this debt. You do not have to be a victim. Michigan State University Extension offers a variety of money management programs throughout the state of Michigan. For more information, check out the Personal Finance articles from MSU Extension.

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