June 15, 2014

Medical debt can have long-term consequences

At 67 years old, Carl Gasper still is juggling a fair share of debt.

He has a mortgage on his three-bedroom Green Tree home, car payments on his Chrysler 300 and several credit cards with balances he carries from month to month.

What he didn’t know until recently is that he also has $640 in unpaid medical debt that had been turned over to a collection agency and reported to the credit bureaus. He found out the hard way in April when he tried to take advantage of a zero percent interest credit card offer — which he planned to transfer some other card balances to — and got turned down.

The medical debt had caused his credit rating to nosedive to a score of 660, which disqualifies him from either being approved by many creditors or from being offered the best loan rates.

"It’s a shame that people like myself that are on a fixed income suffer from a mistake made by people in the medical field and the insurance field, and then be turned over to a collection agency that mars your credit without your knowledge,” Mr. Gasper said.

Many people across the country find themselves in similar predicaments.

While medical debt could potentially wreck someone’s chances of obtaining credit, the Washington, D.C.-based Consumer Financial Protection Bureau recently released a study indicating that many consumers do not even know they have a medical debt in collections until they get a call from a debt collector or discover the debt on a credit report.

When overdue debt goes to collections and ends up on someone’s credit report, it could damage that person’s credit score. A lower credit score means lenders likely will be more cautious about lending money.

"In many ways, medical bills are unusual,” said Richard Cordray, director of the CFPB in prepared remarks. “When you take out a loan, typically you know how much you will owe and the interest rate you will be charged up front.

‘‘But with medical costs, you have less visibility. Costs are often unknown until after treatment.’’

For Mr. Gasper, it began when he suffered a stroke at his home on June 11, 2012, that sent him to Allegheny General Hospital for a couple of days. Although his insurance carrier at the time — United Health Care — paid $32,677 to the hospital, Mr. Gasper said AGH mailed him a room charge for $640, which he did not believe he owed.

Since he was only kept at the hospital for observation after being treated in the emergency room, he said he was considered an outpatient. He said his carrier told him that under his Medicare insurance plan he was only liable for 20 percent of the $640 room charge, or $128.

He thought he had settled the problem with AGH, but in September 2012 he began receiving letters and phone calls from a collection agency, Credit Management Co., located on Noblestown Road.

The collection agency didn’t listen to anything I had to say,” Mr. Gasper said. “They were constantly billing me and calling me and harassing me twice a week asking for $640.”

He refused to pay. The collection agency quit calling and sending letters, but in February 2013, Credit Management filed a claim with the credit bureaus.

Dan Laurent, director of media relations at Allegheny General Hospital, said although the hospital is limited in what it can say due to patient confidentiality, representatives at AGH have confirmed with Mr. Gasper’s health plan that his bill is accurate. He said the hospital also has no record of Mr. Gasper contacting AGH to dispute his bill.

“As with many, if not most health plans, this patient had co-pay obligations that equaled the amount billed,“ Mr. Laurent said. ”We understand the difficulties some patients face in meeting their financial responsibilities for care received.

“To assist such patients, we have policies and programs in place to help ease that burden, including payment plans and in the case of uninsured patients, steeply discounted rates. Patients with insurance, however, are expected to meet their full out-of-pocket financial obligations as defined by their insurance policy.”

He said AGH also allows patients who have balances left to pay after insurance to apply for charity care discounts.

The downside of medical debt that ends up on credit reports is that it often is difficult or impossible to remove even after the debt is paid, according to John Ulzheimer, president of consumer education for Mountain View, Calif.-based, an online service that provides free credit scores and credit monitoring.

"Under our current scoring system, medical debt is just as damaging as any other type of collections … defaulted utilities, credit card bills or apartment leases,’’ Mr. Ulzheimer said.

‘‘It stays on your credit report seven years from the date the original account with the doctor went into default.

“Even if you pay it off, it won’t be removed,” he said. “It will only show a zero balance. The only way it can be removed is if the credit report is inaccurate. In the eyes of the collection agency, he owes $640.

"If Allegheny General Hospital acknowledges they messed up, the collection would have been filed in error and could potentially be removed," Mr. Ulzheimer said. "But that argument would have to be taken up with the hospital."

A proposed law called the Medical Debt Responsibility Act would provide some measure of relief for people who pay off delinquent medical debt.

If it passes, the proposed piece of legislation would require collection agencies to remove medical debt off a person’s credit report within 45 days of the debt being paid or settled.

The bill, sponsored by U.S. Rep. Maxine Waters, D-Calif., was introduced in April 2013. It was referred to the House Committee on Financial Services and has been sitting there ever since without action.

Mr. Gasper said the medical debt is costing him an opportunity to refinance his other debt and has been damaging to his personal finances. According to his Experian credit report, which he provided to the Post-Gazette, the AGH account is scheduled to continue on his credit record until May 2019.

"If I’m paying 9.9 percent interest and I’ve got $5,000 debt, why wouldn’t I transfer it to a zero percent card for 18 months and pay the debt off probably in a year instead of three years?” he asked. “And at 67, how many years do I have? I don’t have the kind of money I used to have. Things aren’t the way they used to be.

"I have tried to fight back and that’s good. Now as a retired entrepreneur and businessman, am I savvy? Yes. Other people would have wrote a check for $640 and been done with it. But I fight it because I know it’s wrong.”