Dealing with Past Due Medical Bills

According to the Federal Reserve about 17% of credit reports contain a medical debt collection. Ignoring medical debt won’t make it go away and is considered by many experts to be a leading cause of reduced credit scores. Medical debt costs consumers vast sums of money each year in higher borrowing costs for things like interest and fees not to mention lost opportunities because they are unable to get credit due to medical debt.

The Medical Debt Responsibility Act which was intended to provide relief for consumers from the ravages of medical debt on credit scores has bounced around both the House and Senate for almost four years and has never made it to the floor of either chamber for a vote. The likelihood that this bill will ever see the light day again is virtually nonexistent.

The Damage Done

The extent of damage to your credit score from any collections action depends on how good your score is to begin with. As a rule the higher the score the bigger the potential fall. Individuals with good credit can see their FICO score drop by as much as 100 points as the result of just a couple of negative items.

While the damage will reduce over time, it will nonetheless remain as a blemish on your credit report for up to seven years as per federal law. Unlike other bills, medical bills often come at the worst possible time, when were sick, worried and pre-occupied, which is a reason they often slip through the cracks. Unfortunately state of mind is not a valid reason for not paying a bill in full or making payment arrangements and sticking to them.

Often Silent, Always Devastating

Medical bills wind up in the hands of collection agencies with greater frequency than other types of bills because of the way the medical profession and healthcare providers do business. Many doctors, hospitals and healthcare providers don’t like to expend a great deal of effort collecting bills and will often not go to great lengths to secure payment for past due accounts.

The result is that they will bundle past due bills into packages that they sell to medical collection agencies for pennies on the dollar. These collection agencies will often cherry pick the most lucrative accounts, those with the largest balances and simply send a single notice to the rest before reporting them to the credit bureaus as delinquent and or uncollectable.

An Ounce of Prevention is Worth a Pound of Cure

The best course of action when it comes to medical bills is to pay them in full as soon as they arrive in your mailbox. Of course this is not always practical or possible but they should not be ignored. Contact the provider as soon after receiving the bill as possible and make payment arrangements in exchange for a commitment that they will not report the debt to the credit bureaus.

In cases where you were not aware of the debt, or did not make arrangements before it went to collections, the same rules apply for dealing with the medical collection agency. If you are able to pay the balance in full do so and if not make a payment arrangement and stick to it. Always be sure to secure their commitment to not report your delinquency as long as you make payments.

Sticking with It

Once you make a payment arrangement, especially with a collection agency, it is important to stick to it no matter what. Collection agencies are in the business of collecting money and are not very good babysitters. That means they can and will report your account as delinquent when you miss even one payment so don’t give them the opportunity.

Once a payment arrangement has been established, keep the lines of communication open at all times. That means if you are going to be late or need to alter the plan, contact the collector before doing anything and make arrangements first. Don’t go into default in the hopes of getting their attention because it will certainly backfire and cause you more problems than it solves.

Light at the End of the Tunnel

Changes in the way FICO scores are calculated have stopped including collection items that are less than $100 which account for more than a third of medical debt. The VantageScore which is an alternative to FICO doesn’t include collections accounts that are reported as paid in its scores.

The best way to deal with medical debt is to stay on top of it as it occurs. This means setting aside some time during the most trying times when you are dealing with illness to keep track of your medical bills and prevent them from becoming issues in the first place.