Jordan Ellis
Medical debt is a unique type of debt that arises from unexpected medical needs, such as a car accident or an emergency room visit. Two-thirds of medical debts are the result of such one-time or short-term medical expenses. Unlike other types of debt, consumers rarely plan to take on medical debt. As a result, many people are unprepared for the financial burden of medical care, and medical debt is the most common collection type reported on consumer credit records. In the United States, medical debt has a significant impact on credit scores and can make it difficult for people to rent or buy a home, purchase a car or insurance, or even get a job. When patients are unable to pay their medical bills, hospitals often work with debt collection agencies to recoup the costs. This has led to increasing criticism of aggressive collection tactics used by both debt collectors and hospitals, particularly against low-income patients. While some hospitals have in-house collection agencies, others sell medical debt to third-party debt-collecting agencies.
| Characteristics | Values |
|---|---|
| Hospitals' relationship with debt collection agencies | Hospitals have been criticized for their relationship with debt collection agencies, with accusations of aggressive collection tactics against low-income patients. |
| Legal protections for patients | Patients have some legal protections against surprise medical bills, and hospitals are required by law to offer financial assistance programs. Patients can also dispute billing information and request debt verification. |
| Impact on patients | Medical debt is the most common type of debt reported on credit reports, and it can impact patients' credit scores, their ability to rent or buy a home, and even their job prospects. |
| State and federal regulations | Some states have enacted laws to protect patients who qualify for financial assistance, while federal law requires nonprofit hospitals to establish financial assistance policies. However, enforcement of these regulations has been inconsistent. |
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What You'll Learn
Hospitals and debt collection agencies
Medical debt is the most common collection type reported on consumer credit records, and consumers report being contacted by debt collectors about medical debt more than any other type of debt. Once medical bills enter collections, they are often reported to consumer credit reporting companies. Medical debt collections on a credit report can impact one's ability to buy or rent a home, raise the price one pays for a car or insurance, and make it more difficult to find a job.
In the case of medical debt, debt collectors are not permitted to report a medical bill to the credit reporting companies without first attempting to collect the debt. Debt collectors may hope that the patient will simply pay the bill without disputing it. However, patients have the right to dispute the information and ask for verification of the debt. It is important to talk to the provider or hospital when one cannot pay the full amount due, as providers typically set up a payment plan. Communicating with the provider is key to making payments affordable and avoiding collection agencies.
In some cases, hospitals have been criticised for their aggressive collection tactics against low-income patients who are unable to pay their medical debts. Hospitals have defended themselves by referencing their "community benefits," including their financial assistance policies (FAPs), which detail eligibility criteria for free or discounted care for low-income patients. However, federal regulations do not set a minimum amount of spending on financial assistance nor minimum income criteria for patient eligibility. As a result, low-income patients continue to be sent bills and subjected to collection actions.
To avoid dealing with collection agencies, it is recommended to start the settlement process as soon as possible, preferably before the debt is turned over to a collection company. One should not be afraid to deal with collection agencies, as an honest and confident approach can lead to a negotiated agreement. If one has a verifiable hardship, such as a disability that prevents them from working, they can seek medical bill forgiveness by petitioning the provider to forgive the debt entirely.
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Medical debt and credit scores
Medical debt is a debt that arises from a visit or interaction with a healthcare provider, such as a hospital, clinic, doctor, or nurse. Two-thirds of medical debts are the result of a one-time or short-term medical expense arising from an acute medical need. For example, you might get into a car accident and end up in an emergency room. You are discharged with a concussion and a broken leg. You leave the ER without paying a bill. Perhaps a bill never comes, you get better, and forget about it. Then, much later, you receive a collections call, and you have no documentation to defend your case. Medical debt is unique because consumers have less ability to shop around for medical services. Medical billing and collections practices can also be confusing and difficult to navigate.
In the United States, consumer credit records contain a total of $88 billion in reported medical bills, as of June 2021. Medical bills are the most common collections item on people’s credit reports and show up on 43 million credit reports. About one in five households reports that they have unpaid medical bills. Medical debt collections on a credit report can impact your ability to buy or rent a home, raise the price you pay for a car or insurance, and make it more difficult to find a job.
In March 2022, the Consumer Financial Protection Bureau (CFPB) published a report describing the extensive and debilitating effects of medical debt. The report found that medical debt is a poor predictor of a borrower's creditworthiness. In June 2024, the CFPB finalized a rule that will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans. The rule will also improve privacy protections and prevent debt collectors from pressuring consumers to pay bills they don't owe. The CFPB estimates that Americans with medical debt on their record could see their credit score rise by an average of 20 points as a result of the rule change.
Settling a medical debt is done in similar ways to settling any other debt. You or someone working on your behalf contacts the doctor, hospital, or collection agency to negotiate an agreed-upon amount for both parties. Experts advise starting this settlement process as soonely as possible, preferably before the debt is turned over to a collection company. Don’t be scared of dealing with collection agencies. An honest and confident approach that works for everyone can lead to a negotiated agreement to pay the collections. If you have a verifiable hardship, such as a disability that prevents you from working, seek medical bill forgiveness. In this case, you petition the provider to forgive the debt entirely. Your provider will want to see proof in the form of tax returns and written documentation that shows you have no means to pay your medical bills. You can also apply to nonprofit organizations such as the PAN Foundation and CancerCare for help with your medical bills.
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Consumer rights and protections
Medical debt is a unique type of debt because consumers rarely plan for it, and it arises from a one-time or short-term medical expense. It is the most common collection item on people's credit reports, with one in five households reporting unpaid medical bills. Medical billing, collections, and credit reporting are complex, confusing, and often contain errors that patients and their families struggle to correct.
If you feel that your rights are being violated, you can seek help from the Consumer Financial Protection Board (CFPB). You can file a complaint with the CFPB, which gives the collection company two weeks to respond before it is made public in their database. This helps in two ways: it may lead to a swift solution, and it builds a record of the type of abuse and the companies that behave badly, helping the government know how to better protect people.
You have the right to ask a debt collector to verify that you owe the debt and that it is yours. Debt collectors can only contact you about valid debts that you owe and must comply with the laws that apply to debt collection. They cannot harass or abuse you, and they must follow requirements when reporting the debt to consumer reporting companies. They cannot call you incessantly, and you have the right to tell them to stop contacting you.
You can also request a free copy of your credit report from annualcreditreport.com or by calling 1-877-322-8228. You can request a free report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once per year. Check the report to make sure the information is correct. Paid medical bills should not be listed on your credit report or factored into your credit score.
If you cannot afford to pay your medical bill, talk to your medical care provider. Nonprofit hospitals are required by law to offer financial assistance programs, and many other providers are willing to work out payment arrangements. Contact your state or local social services to see if more help is available. You can also apply to nonprofit organizations such as the PAN Foundation and CancerCare for help with your medical bills.
For treatments received starting January 1, 2022, you may have protections under the No Surprises Act. For example, you should not receive unexpected bills for emergency services from an out-of-network provider. If you don't have health insurance, your provider must give you a "good faith" estimate of how much your care will cost before you receive it. If the billed amount is $400 or more above the estimate, you may be able to dispute the charges through the patient-provider dispute resolution process.
In California and under federal law, consumers are protected from surprise medical bills, meaning debt collectors may not collect these debts. If you cannot afford to pay certain hospital or medical bills, depending on your income, you may be entitled to free or reduced care. Uninsured patients or patients with high medical costs who are at or below 400% of the federal poverty level are eligible to apply for a hospital's charity care or discount payment policy. Charity care is available even when your bill is past due.
Hospitals are required to provide you with specific notice before transferring a hospital debt to a debt collector. This notice will include a copy of an application for free or reduced care under the hospital's policy, which must also be included in the first written communication from the debt collector. Hospitals cannot sell your patient debt to a debt buyer unless you are ineligible for financial assistance or have not responded to their attempts for 180 days. They cannot report negative information to a credit reporting agency or file a civil complaint in court until 180 days after initial billing.
As of July 1, 2022, the three major credit reporting agencies agreed not to include paid medical debt on consumer credit reports. Starting March 30, 2023, they also agreed not to report medical debts under a certain dollar threshold (at least $500) on credit reports, even if the debt is unpaid and in collection.
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Financial assistance for low-income patients
Hospitals and healthcare providers may have their own financial assistance programs to help low-income patients with their medical bills. These programs, sometimes called "charity care," can provide free or discounted health care services to those who need financial assistance. Nonprofit hospitals are required by law to offer financial assistance, and even for-profit or private hospitals may have financial assistance policies in place. Patients can ask for a copy of the hospital's financial assistance policy, which must be provided for free, and can inquire about eligibility requirements and the application process. Some hospitals may also have agreements with certain banks to offer interest-free payment plans over 2-3 years.
Financial assistance programs typically consider an individual's or family's income, family size, and total medical bills when determining eligibility and the amount of assistance provided. Patients may need to provide proof of income, such as pay stubs or tax returns, and information on their expenses when applying for financial assistance. It is important to note that financial assistance programs usually apply only to medically necessary or emergency care and may not cover non-emergency services.
In addition to hospital-based financial assistance programs, there are also state-run financial assistance programs and nonprofit organizations that can help with medical bills. For example, the Affordable Care Act (ACA) requires hospitals to have a written Financial Assistance Policy (FAP) and a written Emergency Medical Care policy. These policies should be easily accessible to patients and include information on eligibility criteria and the basis for calculating charges. Some states, such as California, Connecticut, Illinois, and New York, have charity care laws that require hospitals to provide free or discounted care to eligible patients, often based on income.
Furthermore, patients facing high medical expenses can also explore other options for financial assistance. They can contact their medical care provider to discuss payment plans or negotiate a settlement, especially before the debt is turned over to a collection agency. Patients with verifiable hardships, such as a disability that prevents them from working, can also seek medical bill forgiveness from the provider. Additionally, nonprofit organizations like the PAN Foundation and CancerCare may be able to offer assistance with medical bills.
It is important to note that medical debt can significantly impact an individual's credit score and ability to obtain loans or services. Medical debt is the most common type of debt reported on consumer credit records, and it can lead to collection calls and legal actions if left unpaid. However, patients do have rights when it comes to medical debt collection. They can request debt collectors to verify the debt and comply with laws that protect consumers from harassing or abusive collection practices. Patients should also be aware of their rights under the No Surprises Act, which offers protections against unexpected medical bills for emergency services or out-of-network providers.
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Medical billing and collection practices
Medical Billing Process:
The medical billing process typically begins with registering the patient, verifying their insurance eligibility, and collecting the patient's financial responsibility, such as copayments, coinsurance, and deductibles at the time of service. Physicians play a vital role in this process by providing procedure and diagnosis codes based on their notes from patient encounters. These codes are then converted into formal medical scripts, which coders use to determine the appropriate ICD-10 and CPT codes for each claim. Each code is associated with a specific charge to indicate the reimbursement amount to the payer.
Insurance Claims and Reimbursement:
The coded claims are entered into practice management software, scrutinized for accuracy, uploaded to a clearinghouse, and then submitted to individual insurance carriers. The insurers either accept or reject the claim for reimbursement. Payments are received from the carriers, and any outstanding balances are transferred to a secondary carrier or the patient. Medical billers play a crucial role in promptly handling rejected, unpaid, or partially paid claims to ensure timely payment.
Patient Payment Plans:
When patients cannot pay their medical bills in full, healthcare providers are encouraged to work with them to establish affordable payment plans. Some hospitals have agreements with banks to offer interest-free extended payment plans, provided payments are made on time. It is in the best interest of both the patient and the healthcare provider to avoid involving collection agencies whenever possible.
Medical Debt Collection:
Despite efforts to prevent it, medical debt remains a significant issue, with $88 billion in medical bills reported on consumer credit records as of June 2021. Medical debt is unique as it often arises from unexpected or emergency medical needs. Two-thirds of medical debts are the result of one-time or short-term expenses. Once medical bills enter collections, they are typically reported to consumer credit reporting companies, impacting various aspects of a person's financial life, including their ability to buy or rent a home.
Patient Rights and Protections:
Patients have certain rights when it comes to medical billing and collections. They can request debt collectors to verify the debt, provide information about the collector, and ensure that the bill is accurate. Patients also have protections under laws such as the No Surprises Act, which aims to prevent unexpected out-of-network billing. Additionally, patients should be aware of harmful collection practices and their rights under the Fair Debt Collection Practices Act and Fair Credit Reporting Act.
In summary, medical billing and collection practices involve a complex interplay between healthcare providers, patients, insurance carriers, and debt collectors. By understanding these processes, patients can better navigate the financial aspects of their healthcare journey, and healthcare providers can implement effective billing practices while minimizing financial hardships for their patients.
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Frequently asked questions
Medical debt is a debt that arises from a visit or interaction with a healthcare provider, such as a hospital, clinic, doctor, or nurse.
Hospitals do not have in-house collection agencies, but they work closely with third-party debt collection agencies. Hospitals have been criticized for their aggressive collection tactics against low-income patients who are unable to pay their medical debts.
You have the right to ask debt collectors to verify the debt and provide information about the collector and the bill. You also have the right to dispute any incomplete or inaccurate information and remove any outdated, negative information. In some cases, you can directly sue hospitals or debt collectors for inaccurately reporting medical debt. Additionally, federal law requires nonprofit hospitals to establish and publicize a written financial assistance policy.
It is important to communicate with the healthcare provider or a certified debt counselor to negotiate a payment plan or apply for financial assistance programs. Making regular payments on medical debt can help avoid collections, but it does not guarantee that you will not be contacted by collection agencies. Seeking trustworthy debt counseling can help sort out debt issues and explore options for debt forgiveness or reduction.
Medical debt is the most common collection type reported on consumer credit records. Failing to pay medical bills can hurt your credit score, and once medical bills enter collections, they are often reported to consumer credit reporting companies. This can impact your ability to rent or buy a home, increase the price of insurance, and make it more difficult to find a job. However, as of July 1, 2022, paid medical bills will no longer be included on credit reports from Equifax, Experian, and TransUnion.
