Unpaid medical bills represent 58% of collection receivables: CFPB report


Medical debt is a problem for millions of Americans who have hospital bills in collection. Here’s what the CFPB plans to do about medical credit reports and how you can get rid of unpaid medical debt. (iStock)

The majority (58%) of collection receivables come from medical bills, according to a new report the Consumer Financial Protection Bureau (CFPB). About 43 million Americans have medical bills on their credit report, with a total unpaid medical debt of $88 billion.

CFPB Director Rohit Chopra said at a press conference that the bureau is taking steps to clarify the role of medical bills in credit reports, and may even consider banning major credit bureaus from including medical debt in calculating credit scores.

“Even when a patient is trying to fight to get an accurate bill or an insurance claim paid, medical debt collectors have a weapon that’s hard to fight against: the credit report,” Chopra said.

Overdue medical bills on a patient’s credit report can lower their credit score, making it more difficult to obtain favorable loan terms on mortgages, student loans, and other credit products. Medical debts in collection can eventually result in late fees, costly legal proceedings, wage garnishment and often bankruptcy.

“Having a medical debt collection mark on a credit report can make it harder to get credit, rent or buy a home, or find a job,” Chopra said. “Families are being pushed into bankruptcy by medical debts they cannot pay.”

Keep reading about how the CFPB plans to increase consumer protection for medical bills in credit reports, as well as how you can pay off medical debt in collections. If you’re struggling with unpaid medical bills, you can sign up for free credit monitoring services on Credible to receive notifications when your credit report changes.

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CFPB Director Unveils Medical Debt Reporting Assessment Plan

In light of its recent report on the impacts of unpaid medical bills on credit reporting, the CFPB is taking several steps to address the issue:

  • Review the inclusion of medical debt in credit reports.

The CFPB works with government agencies and the medical community to determine whether it is appropriate to include unpaid medical bills in credit reports. Collection agents often use “coercive credit reports” and the threat of negative credit impacts on strong-armed patients to pay their medical debt.

“Many members of the healthcare community have already taken steps to avoid this behavior and to work constructively with patients before launching an attack on their credit report,” Chopra said.

The bureau may consider preventing debt collectors from reporting overdue medical bills to credit bureaus.

  • Expand access to financial assistance programs for medical billing.

Nonprofit hospitals are required by federal law to offer financial assistance programs, such as payment plans and reduced-cost care. The CFPB determines best practices to facilitate patient access to financial aid.

Additionally, the bureau partners with the Department of Health and Human Services (DHHS) “to ensure that patients are not billed or paid illegal surcharges for medical care,” Chopra said. This is in line with the No Surprises Act, which aims to protect patients from surprise medical bills.

  • Investigate medical debt reporting practices by credit bureaus.

Credit reporting agencies are required to identify inaccurate reports of debts owed by The Fair Credit Reporting Act (FCR). This is a major concern for the CFPB, as Chopra said the medical billing and collections system is “error-ridden” and confusing for patients to navigate.

To help patients who often struggle to determine the validity of their medical bills, the CFPB will closely monitor the reporting practices of Equifax, Experian and TransUnion. This will ensure that credit reports aren’t “used as a tool to coerce and extort medical bills from patients that they may not even owe,” Chopra said.

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How to Repay Medical Debt in Collections

Overdue medical bills can hurt your credit score and have serious financial consequences over time. Here are some strategies for managing medical debt in collections:

Learn more about each strategy in the sections below.

Dispute medical debt on your credit report

Major credit bureaus must wait 180 days before including medical debt in your credit file, according to Experian. This grace period gives consumers six months to resolve medical billing errors, enroll in a payment plan, or pay off debt.

To determine if you have been billed inaccurately, look for common medical billing errors such as double billing and incorrect coding. Also, request an Explanation of Benefits (EOB) from your health insurance company to determine if you were billed for a service that should have been covered by insurance.

If you were charged in error, you can file a dispute directly with the credit reporting agency. You can also sign up for Experian’s credit monitoring services on Credible to identify and correct errors on your credit report in a timely manner.

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Negotiate a settlement with the debt collector

If your unpaid medical bill is a legitimate charge, it may be possible to settle the debt more cheaply or sign up for a payment plan. The CFPB offer some advice to negotiate debt settlement with a collector:

  • Get more information about the debt, like where it came from and how much you owe. If you do not recognize the debt, you can ask the collector for more information about the original creditor.
  • Make a realistic offer for debt settlement or repayment. Determine how much you can afford to pay each month on the debt or the total amount you are willing to pay to settle the debt. If your debt is old, you may want to contact an attorney first to see if it has reached your state’s statute of limitations.
  • Explain your current financial situation and proposed repayment plan to the debt collector. You may have more negotiating room with a debt collection agency than with the original creditor. Take detailed notes and record your conversation if necessary.

Be sure to get any debt settlement agreement in writing before making a payment.

Contact a credit counseling agency

It can seem daunting to negotiate high levels of medical debt with a third-party debt collector. To ensure the process goes to your advantage, you might consider credit counseling services.

A credit counselor may be able to negotiate with your creditors on your behalf. This may include entering into a debt settlement agreement, waiving late fees, and enrolling in a debt management plan (DMP). Credit counseling is often free, but some services may be offered at low cost.

Nonprofit credit counseling agencies are governed by federal law. You can view the full list of licensed credit counselors at the Department of Justice website.

Pay off debt with a 0% APR credit card offer

Some credit card issuers offer a 0% APR introductory period of up to 21 months for consumers who open a new card. It may be possible to pay your medical bills in collection with a credit card and then reduce the debt in monthly payments during the interest-free period.

If you pay off the debt in full by the time the 0% APR offer expires, you can effectively avoid paying interest on your medical bills. Any remaining balance after the zero interest period will be charged the regular purchase APR, which can often be high.

These promotional offers are generally reserved for applicants with very good or excellent credit, as defined by the FICO scoring model like 740 or higher. To see if you meet the eligibility requirements, you can visit Credible to compare credit cards with interest-free introductory periods.

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Consolidate your debts with a fixed rate loan

Another common way to pay off medical expenses is to take out a debt consolidation loan. It is a type of fixed rate personal loan that you repay in fixed monthly payments over a set period of time, usually a few years.

Since personal loans are generally unsecured and do not require collateral, lenders determine your eligibility and interest rate based on your credit history and debt-to-equity ratio. Applicants with good credit will be eligible for the lowest personal loan rates, while those with bad credit may see high interest rates – if eligible.

Personal loan rate by credit score

Since you will pay interest charges to borrow a debt consolidation loan, it can be a last resort after settling the debt and negotiating the medical bill. But if you’ve exhausted your alternative medical debt relief options, personal loans can provide a quick financing option to help you pay off collection debt on a predictable repayment schedule.

You can use a personal loan calculator to estimate your monthly payments using this debt consolidation strategy. If you decide to take out a debt consolidation loan, be sure to compare rates from multiple lenders on an online marketplace like Credible to buy the lowest rate possible for your financial situation.

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You have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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