The Doctor’s Visit that Can Ambush Your Credit

Does this sound familiar?  It’s been two months since a doctor’s visit and you’re starting to get bills. Bills from your doctor. Bills from the insurance company. Bills from laboratories, hospital or other service providers.  The deluge of paperwork following a medical procedure can get downright confusing.  Phone calls probably won’t clarify the issue. One office may ask for payment, while another says don’t worry—if you can get a live person on the phone.  Most of us have faced difficulties akin to this scenario in the aftermath of even the most basic doctor visits.

But it gets worse. One doctor’s visit could jeopardize your financial health. Just ask Jason Davidson, a Dallas, Texas-based sales manager, whose discovery of a $293 medical bill from three years ago resulted in nearly $3,000 in extra fees when he applied for a new mortgage—all because the law doesn’t address the uniqueness of medical debt.

Medical collection accounts can lower credit scores significantly, bringing about all sorts of financial difficulties, from getting declined for loans to not getting hired for a job, from having credit cards shut down to paying higher interest rates and fees.

According to the Commonwealth Fund, a private foundation focused on promoting a high performing health care system, roughly 72 million or 41 percent of American adults under 65 have some type of problem related to medical bills or accrued medical debt.  Chances are, if you haven’t had a credit issue related to a medical bill, you know someone who has.  In Jason’s case, a medical bill reduced his credit score an estimated 63 points from 757 to 694, ultimately costing him 1.5 points more on a $193,000 mortgage, for a whopping total of $2,890, a ten-fold penalty for a bill he never knew about, and settled upon discovery.

Something must be done and I have a solution.  It’s simple, but it will literally take an act of Congress.  I propose that medical collection accounts be removed from an individual’s credit report within 30 days of being settled.

Medical debt inconsistencies and their related abuses are out of hand and costing Americans millions.  Some medical offices bill insurance, some don’t—which adds to the confusion in who’s responsible for what, and by which deadline. When insurance companies respond, it’s usually in the form of a bill or a status update, which look so similar that it’s hard to distinguish between the two.  Unlike traditional creditors, medical transactions often involve multiple parties, so a person can pay a medical bill in full, but still be charged additional fees by laboratories or other service providers. Assuming the bill is settled and the additional bill was sent in error, people often unintentionally fail to settle the bill to completion.  

The problem is worsened by the medical industry’s practice of sending overdue bills to a collections agency without notifying the individual, which often makes the collections bill the first time consumers find out about the overdue account. Problem is, the instant a collections agency gets involved, the account is reported to the credit bureaus.  Even if the bill is settled in full at first contact, existing law dictates that the account will stay on the individual’s credit record for up to seven years.

As the number one producing originators of FHA and VA loans in the country with over 15 years experience, I’ve seen scores of hardworking, financially responsible people unfairly penalized for medical collection accounts. Even Fair Isaac Corporation (FICO)—the creator of its namesake credit rating system—has acknowledged that medical debt is atypical and non-predictive. Allowing paid medical collections debt to impact credit ratings is unfair and victimizes as many as 100 million Americans. It is costly, it endangers economic recovery, and it needs to stop.

Congress can end this injustice by amending the Fair Credit Reporting Act (FCRA), mandating that medical collections be removed completely from the individual’s credit report within 30 days of being settled.  It’s an easy “fix”—mainly a software issue for credit report providers—and I am hopeful that the current Congressional debate on health care and financial services reform will include this proposal. 

By injecting common sense and fairness to this issue, we can help millions of individuals and boost the U.S. economy.  All we need is an act of Congress, which is easier than it sounds if just one percent of those affected contacted their congressman.  A million or so calls and letters can work wonders.