Unlike other types of debt, medical debt is related to one’s health, which cannot be predicted or controlled. When unpaid, medical bills are often sold to debt collectors and can be reported to credit bureaus. If medical collections are reported, it can hurt one’s credit score, making it difficult to get loans, buy a house, or get a low-interest credit card.
The health care system often has unpaid debt due to unexpected medical needs, out-of-pocket insurance costs, billing errors and coverage disputes, and unexpected out-of-network charges. If someone doesn’t pay their medical bill, the health care provider will attempt to collect that debt or may send it to a medical collections agency.
Past Due Bill
A medical bill is considered past due if the patient makes no attempt to either pay it or arrange a payment plan for the debt. In most cases, the payment period is 90 to 180 days from the initial billing date; however, there is no set time before a bill is considered past due.
Once an unpaid bill becomes a bad debt, meaning it is considered a business loss, then providers can turn it over to an in-house or third-party medical collections agency. Most debt buyers purchase unpaid bills at a fraction of the bill amount. They will attempt to collect the debt using letters and phone calls. They may charge penalties and interest or attempt to settle for less than the original bill amount in order to receive a return on their investment. If a debt remains unpaid, a medical collections service may file a civil lawsuit seeking an outcome like garnished wages or the seizure of personal property, such as automobiles or real estate.
Even before it is sent to medical collections, an unpaid or past due bill may be reported to credit bureaus. The debt will not appear on an individual’s credit report until 180 days after the initial report is made, at which point it appears as “account in collections.” Not all unpaid debts are reported to credit bureaus.
Medical collections can only reduce an individual’s credit score, as on-time payments are not tracked by credit bureaus. If an unpaid bill is reported, the person’s credit score will be reduced for seven years, even if the bill is eventually paid off.
A lower credit score can affect an individual in numerous ways. One’s credit score is used to determine the probability that they will pay future financial obligations, so a low score can affect one’s:
● Ability to access to good debt, such as loans and credit cards
● Future interest rates, which are lower for those with a good credit score
● Employment opportunities, as many employers use credit checks as a method of determining employment or promotions
● Housing opportunities, since a credit score can determine one’s ability to secure a mortgage and landlords often use credit checks to select tenants
● Cost of transportation, as it may be more expensive or even impossible to get a car loan with bad credit
● Security deposits for utilities, since utility companies base the deposit amount on one’s credit history
● Cost of insurance, because in some states, medical collections can affect home, auto, and life insurance premiums
Medical collections can have a huge impact on one’s financial future, so it’s important to immediately address any medical bills, whether they can be paid outright or not. Contact the health care provider to make arrangements for a payment plan so that the bill is not seen as unpaid and sent to a medical collection agency. Most physicians and health care facilities are willing to work with patients to create a reasonable payment option rather than sending the bill to collections.
If a debt does go to medical collections, individuals should contact the creditor as soon as they receive the bill. Since most credit bureaus give a grace period, up to 180 days, before posting the debt, people have time to resolve any issues either with their insurance company, the health care provider, or the medical collections agency itself.