Almost all medical debt will be removed from consumer credit reports: Forbes Advisor

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Many American consumers will soon see their medical debt erased from their credit reports, the three credit bureaus Announced last month.

Medical debt is widespread in the United States. According a report in the American Journal of Public Health.

But the way medical debt is reported on consumer credit reports is changing. And those changes can make it easier to rebuild credit for people who have dealt with the burden of unexpected medical bills. accounts in collections on your credit reports can dramatically lower your credit score, making 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.

How the medical debt credit report is changing

As of July 1, 2022, medical debt that has been paid will no longer be listed on Equifax, Experian, and TransUnion credit reports, even if it has been on your report for several years.

Furthermore, the three credit bureaus they are increasing the amount of time before medical debt in collections shows up on your credit reports. That cushion is now six months, but it will be extended to a year.

If you are in the process of negotiating or paying off a medical debt, this may give you more time to work with providers or collectors to find a mutually agreeable payment solution.

Finally, starting in the first half of 2023, all three consumer reporting agencies will no longer include medical debt in charges under $500 on credit reports.

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Read more: How to get your free credit report every week

Medical debt is a huge component of consumer debt

You can think of consumer debt as a result of spending too much on credit cards or living beyond your means. But nearly one in 10 adults (about 23 million Americans) owes 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 America focus on their financial and personal well-being.”

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 that medical debt is an unexpected financial burden and “is not a true reflection of a person’s willingness or ability to repay a debt.”

About a fifth of American households could not pay for medical care in advance in 2017, according to the most recent data from the Census Bureau.

Although most people with medical debt owe less than $500 per medical bill, these amounts add up. According to the Consumer Financial Protection Bureau, consumer credit reports reflect $88 billion in medical debt from June 2021.

Why medical debt is so difficult for consumers to manage

McCall explains that it’s often difficult for consumers to know what expenses they’re committed to and what insurance will ultimately pay for, if they have coverage.

By the time you realize that yes, you will be responsible for a particular medical bill, it may already be past due and on its way to collection.

An account that went to collection but has since been paid remains on your credit reports for approximately seven years after it is sent to collection. “We’re punishing consumers for something that happened unexpectedly seven and a half years ago and they’ve been worth it,” says McCall. “They are still being punished for it.”

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Read more: How to remove collections from your credit report

Medical billing errors make things worse, McCall explains. Medical bills often include coding errors, which could result in the patient’s financial responsibility being much higher than expected.

McCall shared an example of this: When she was in the hospital giving birth, they gave her an aspirin. But the bill she received later indicated that instead of charging her for an aspirin (about $4 per pill), she was charged for the entire bottle (about $500).

The credit reporting system “forces patients and their families to pay bills whose accuracy they doubt,” CFPB Director Rohit Chopra said in a declaration On March 1. The announcement by the three credit bureaus came shortly after the CFPB announced that it would examine the credit bureaus’ practices regarding medical debt and investigate possible improvements to the medical billing and collection 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 did not expect to receive a bill for medical services or if your bill total is higher than you expected, ask the billing department for more information.

Even if you can afford a medical bill, McCall recommends requesting an itemized statement that shows all 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. Request a cash discount

Once you’re sure your bill is correct, ask the hospital if there’s a cash discount for paying 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 may be a better option than using a credit card or personal loan to cover the cost.

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Your health care provider may offer an interest-free or low-interest payment plan to spread your payments over time without the added cost of high interest rates.

3. Look for financial assistance

Many hospitals employ advocates who help patients with financial difficulties, McCall explains. Ask the medical provider’s billing department if there is a financial assistance program for people who are having trouble paying their medical bills.

Some hospitals will write off your debt entirely or drastically reduce the amount you owe.

McCall says billing departments are used to hearing patients say, “I don’t have the funds to pay for this” or “I don’t think I’ve been billed correctly.” Don’t be embarrassed to ask for help.

4. Check the invoices that have already gone to collection

If you have medical debt that has already been sent for collection, check to make sure the debt collector hasn’t added additional fees to your total debt. To find the fee schedule from your original medical bill, you may need to refer to the documents you signed at the hospital or health care facility.

McCall explains that medical debt is often sold to debt collectors, and this can be done multiple times over the life of the debt. Some debt collectors will try to add new fees to your bill, he says, “in an attempt to scare you into paying the debt quickly or paying more of the debt.”

Adding fees beyond those detailed in the original contract is a violation of federal law.

If you discover that a debt collector has added illegal fees, report it to the Federal Trade Commission, CFPB, and your state attorney general. If you find the additional charges within a year of the collector breaking the law, you also have the option of suing the debt collector to remove the charges, but you will still be responsible for the original debt in collections.

Aaron Hurd also contributed to this article.