Collection agencies contacted 30 million people for unpaid medical bills in 2010, according to a survey by The Commonwealth Fund. It’s estimated that about one-third of those collections were the result of billing errors. You’d think that someone’s credit score wouldn’t be damaged by a billing error that wasn’t their fault. Unfortunately, that’s not the case.
Once a medical bill is sent to a collections company, either rightly or wrongly, it is recorded with the credit reporting agencies and stays on your credit report for seven years. It doesn’t go away even after the bill is paid. A credit score can drop by 100 points or more with just one small collection account, even if the rest of your credit history is spotless.
The end result is millions of consumers end up with lower credit scores and pay higher interest rates on things like mortgages, credit cards and car loans. And it’s all due to an unpaid medical bill that they didn’t know existed.
Medical billing errors occur in so many ways that it’s not possible to list them all here. Medical staff might make input errors for what services were received. A patient may assume the insurance company will pay a bill, but they don’t. Or the patient receives so many medical bills they can’t figure out what they owe versus what the insurance company will cover.
The problem has gotten serious enough for Congress to get involved. There is a bill called the Medical Debt Responsibility Act that will require any medical related collection account less than $2,500 be removed from your credit report within 45 days of being paid. Hopefully Congress will pass this act into law so consumers will stop getting financially damaged by medical billing errors.
In the meantime, there are a few things you can do to prevent medical bills ending up as a collection account on your credit report. The first step is to monitor your credit report like a hawk after you receive any medical care. The more care you receive, the more likely this problem can occur.
Get your free credit reports from annualcreditreport.com and monitor them for things like collections accounts. And consider signing up for a credit monitoring service after receiving medical care.
If you get a call from a collections agency, quickly determine if it’s a medical bill you owe. If it is, tell the collections agency that you will immediately pay the balance due and request that they don’t report the collection to the credit reporting agencies. Get this in writing.
If the collection account is already on your credit report and you know that you are not at fault, call the medical provider and explain their error (i.e. you didn’t receive a bill, the charge is not valid, etc.) Request that the collection account be pulled back. If the medical provider won’t do that, a last-resort option is to file a credit damage lawsuit. But consult an attorney first.
So the next time you receive medical care be sure to monitor your credit report for at least the next 12 months. This will help you avoid an unpaid medical bill ending up on your credit report and potentially costing you thousands of dollars.
Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.
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