May 9, 2013

Congress may ease medical debt burden

Democrats and Republicans are coming together in an effort to prevent unpaid health care bills from ruining people financially.

There’s at least one thing Congressional Republicans and Democrats agree on, and it’s that medical debt is a problem. Members of Congress and their staff recognize that medical bills are confusing and prone to errors — and the debts can hurt creditworthy consumers by constraining their access to credit.
In recent years, attempts at much-needed reforms have fallen flat. However, the cause is now gaining support on a number of fronts and could finally lead to help for consumers who are drowning in medical debts.

There are few times when a person is more vulnerable than when they are sick and worried about their prognosis — and then the confusing medical bill statements begin arriving. Many months may go by before a consumer realizes a bill is overdue. And medical bills that fall through the cracks, whether large or small, can be sent to collection. Add to the fact that billing errors are also a common problem for consumers, and you have a recipe for disaster. Last year, the American Medical Association's Health Insurer Report Card found that the error rates for private health insurers on paid medical claims was 10%.

However, whether due to an oversight or an error, once a medical bill is in collection, if it is reported to the credit bureaus it is seen as an adverse account and one's credit is ruined. How big is this problem? A new report from the Commonwealth Fund says 41 million Americans were contacted by collection agencies about medical bills in 2012. The report estimates 7 million American adults reported that a billing error had prompted a collection agency to contact them and that 32 million Americans had credit scores lowered due to medical debt.

According to FICO, a medical collection -- even for a very small amount -- can lower a score by “100 points or more” for someone with a good credit history. These consumers can see higher interest rates charged on loans if they are able to get one at all.

Gaining support
Medical debt is quite possibly the issue that could revive the Congressional bipartisan spirit. The leading indicators that this may happen are none other than the chair and ranking member of the House Financial Services Committee.

In April, Rep. Maxine Waters (D-Calif.), the Committee’s ranking member, recently introduced H.R. 1767 – the Medical Debt Responsibility Act of 2013. The legislation would help Americans who have seen their credit scores drop due to medical bills. It would require the removal of fully settled or paid medical debt information from a credit report within a 45-day timeframe. “Illness or injury may strike any of us at any time, and often results in expensive treatment leaving millions of Americans to wrestle with medical debt,” said Rep. Waters.