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Consumer Advisory: 7 ways to keep medical debt in check

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Debt collection is the top complaint we’ve received since September 2013. Out of all debt types, medical collections make up 52 percent of collection accounts on credit reports, far outpacing all other types of debt.

Medical collections are so widespread, that an estimated 43 million consumers with an account in collection have medical debt. We analyzed medical collections in our latest report, to explain why medical debt is affecting so many more credit reports than any other type of debt. You can read more about how medical debt hurts your credit report.

Here are steps you can take to keep medical debt in check:

1. Review medical bills carefully

If you don’t recognize the provider, check the date of service to see if you had a medical treatment on that day. For more complicated procedures, ask for an itemized bill from the provider in order to check how much you were charged for each service. Some providers who bill you directly may have been associated with a hospital where you were treated, so you may not have known you were receiving services from them at the time you were being treated.

2. Get documentation

Prepare an organized record of all bills. If you need to dispute a bill, send a written notice to the provider and include a copy of all relevant documents, such as records from doctors’ offices or credit card statements. Do not send original documents.

3. Check your health insurance policy and make sure your provider has your correct insurance info

You should know what your insurance covers, and what it doesn’t – but first your insurance information needs to be up-to-date and accurate! A small mix up can lead to big bills for expenses that your insurance should have covered.

4. Act quickly to resolve or dispute the medical bills that you receive

If you have verified you owe the bill, try to resolve it right away. Verify whether an insurer is paying for all or part of a bill. If you delay the bill and let it end up in collections, it can have a significant impact on your credit score. If you don’t owe the bill, act quickly to dispute it.

5. Negotiate your bill

Hospitals may negotiate the amount of the bill with you. The tab may be reduced if you pay the whole amount up front. You can also try asking for the rate that people who have insurance get. The hospital might also offer a plan that enables you to pay off the debt in installments at no interest. It doesn’t hurt to ask.

6. Get financial assistance or support

Many hospitals have financial assistance programs, which may be called “charity care,” if you are unable to pay your bill. Check the deadlines, which can vary.

7. Don’t put medical bills on your credit card, if you can’t pay it

If you can’t immediately pay off a high debt on your credit card bill, you will be charged high interest, and it will look like regular debt to other creditors. Instead, ask your medical provider for a payment plan with little or no interest.

Related information about debt collection

Check out Ask CFPB to learn more about your debt collection rights and to learn about medical credit cards.

If you’re dealing with debt in general, you can consider finding a reputable credit counseling agency.

Here’s how medical debt hurts your credit report

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Since September 2013, debt collection has been the top complaint at the CFPB. Among all debt types, medical debt tops the list. When a debt is past due, a collector may report the account to a credit agency. This would appear as an account in collection, often resulting in a credit score drop.

A staggering 52 percent of all collection accounts on credit reports are medical. An estimated 43 million consumers with a credit report at a nationwide consumer reporting agency have one or more medical accounts in collection. Here’s how you can keep medical debt in check.

FIGURE 1: SHARE OF COLLECTIONS ON CREDIT REPORTS BY TYPE

201412_cfpb-heres-how-medical-debt-hurts-your-credit-report-figure-1.png

Source: Consumer credit reports: A study of medical and non-medical collections

A collections item on a credit report can hurt a credit score severely and inhibit access to insurance, housing or employment. A consumer with a FICO score of 680 could see a score drop of 45-65 points. A score of 780 could drop 105-125 points.

Lack of accountability and standards for collections practices

According to complaints to the CFPB, consumers may not be aware that they owe a medical debt or have time to resolve it, before a collection account appears on their credit report. The absence of any standard of how delinquent a medical debt has to be before it appears on a credit report means this can happen anywhere between 30 – 180 days past the billing date. When collectors substitute active efforts to contact a consumer with a report to credit reporting agencies, they impose a huge cost on consumers.

Confusion from multiple bills, providers, and collectors

Medical billing is complicated and confusing. A single treatment at a hospital can result in multiple bills from multiple providers. For example, after a surgery, a consumer can receive a bill from the surgeon, the anesthesiologist, and the surgery facility. A health insurance policy may cover some providers and some procedures, but not others. And it may cover all or part of a bill. Some consumers may find it difficult to know what they owe, to whom or for what.

This confusion can be amplified when a medical bill goes to collections. Medical providers in turn rely on a series of third-party collectors with only indirect and short term ties to the underlying debt, thereby introducing potential for errors in collections reporting. This can make it challenging for consumers to verify whether they truly owe the debt.

Medical debt is different, but scores haven’t treated it that way

Many consumers who have medical debts in collection, may have the ability and willingness to pay. Of the consumers with only medical collections accounts, 50 percent have otherwise “clean” credit reports. These consumers may have lacked proper notification about the debt from the collector or are in the process of contesting it. Our May 2014 data determined medical debt is not as good a predictor of a consumer’s likelihood of paying a debt as was previously believed.

Medical collections accounts are smaller (on average) than many other types of debt. Half of medical debts are under $207. This indicates that consumers may be able to pay them. Some consumers may just be confused about what they owe, believe the debt has already been paid, or that they simply do not owe it. Credit scores that treat medical and non-medical debts the same over-penalize the millions of consumers who have medical debt.

FIGURE 2: AVERAGE AND MEDIAN AMOUNTS OF COLLECTIONS BY TYPE

201412_cfpb-heres-how-medical-debt-hurts-your-credit-report-figure-2.png

Source: Consumer credit reports: A study of medical and non-medical collections

More problems for vulnerable consumers

Consumers with many medical bills face even more challenges from the present medical billing and collection system. This may be particularly true for those with medical emergencies or lengthy hospital stays. These consumers may lack the support, time, energy or resources to resolve debt promptly. As consumers have to deal with the illness or emergency, they also must cope with the cost of care and figuring out how much their insurance will cover.

Consumers with language assistance needs (and those assisting them) may have more difficulty recognizing or resolving their bills when dealing with collection agencies. In complaints made to the CFPB in mid-2014, consumers identified as having medical debt were more than twice as likely to claim the “debt was paid” (20.1% to 8.4% for non-medical) and more likely to claim they were “not given enough information” (14.5% to 9% of non-medical).

The current medical debt collection system is not working for consumers

Collectors and medical providers can make medical collections more standardized so that consumer behavior can be more accurately reflected in credit scores.

The IRS is proposing policy that would require non-profit hospitals to wait at least 120 days before engaging a third-party collector and reporting debt to a credit agency. Last year a hospital trade association and a debt collection trade association jointly proposed a similar standard as part of best practices for patient billing, collections, and credit reporting.

More consistent and more accurate reporting may have its biggest impact among consumers who are struggling to understand their medical bills and keep up with health care costs. In addition, it will lead to greater credit predictability and a stronger credit system.

To work toward the continuous improvement of credit report accuracy and better monitor risks for consumers, we’re also requiring that major consumer reporting agencies provide regular reports to the CFPB about what companies are receiving the most disputes from consumers.

Check out the full report to learn more about medical debt collection and our new requirement.

Have you been impacted by medical debt? You can tell us your story.

If you have a complaint about credit reporting, debt collection, or any other consumer financial product, you can submit a complaint online or by calling (855) 411-2372.

Save the date, Oklahoma City!

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Join us for a field hearing in Oklahoma City, OK on medical debt collection. The hearing will take place on Thursday, December 11 at 11 a.m. CST. The event will be held at:

Oklahoma City University
Kerr-McGee Auditorium
Meinders School of Business
2501 North Blackwelder Ave
Oklahoma City, OK 73106

The hearing will feature remarks from Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.

This event is open to the public and requires an RSVP. Send us an email to RSVP. A livestream will also be available here on our blog.

If you need an accommodation to participate, you can make a request.

See you there!

Updated Dec 4, 2014 to include venue location.

Four things older Americans can do about debt collection problems

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If you’re an older American and you’re having trouble with debt collectors, you’re not alone. Since July 2013, older Americans have submitted approximately 8,700 complaints to us about debt collection.

We looked at these complaints and described the most common problems that consumers are experiencing in our snapshot of debt collection complaints submitted by older consumers.

People’s complaints often express grief, confusion, and frustration regarding the collection of medical debt, debt of deceased family members, and even suspicious calls from individuals who claim to be collectors.

Here’s what you or your loved ones can do when experiencing debt collection problems:

1. Get more information if you don’t recognize the debt

Older consumers report that debt collectors may have inaccurate or inadequate information, and sometimes don’t provide sufficient information to help them identify the debt. Almost one-third of the older consumers who submitted a complaint couldn’t identify the debt being collected.

First things first! Ask the debt collector for the company’s name and address. If the debt collector refuses to give you this information, you may be dealing with a fraud. If you think that a caller may be a fake debt collector:

Ask the caller for his or her name, company, street address, telephone number, and professional license number.

If you have the company’s name and address but you don’t recognize the debt, ask for more information in writing. You can start by using this sample letter.

Send this letter as soon as you can — if at all possible, within 30 days of when a debt collector contacts you the first time about a debt.

2. Dispute the debt if it’s not yours or if the amount is wrong

You can write a letter disputing the debt or any portion of the debt. It’s important to do so as soon as possible after you’re first contacted, and to keep copies of any letters you send.

If you dispute a debt (or part of a debt) in writing within 30 days of when you receive the required information from the debt collector, the debt collector cannot call or contact you until after the debt collector has obtained verification of the debt and has provided the verification of the debt in writing to you. You can use this sample letter.

3. Stop harassing and/or offensive calls

Older consumers told us that debt collectors sometimes refuse to take “No” for an answer, reporting in their complaints that collectors often use offensive language and make threats. To one extreme, we’ve also heard about collectors making successive calls using profanity or derogatory names.

You don’t have to put up with it. You can send a letter to the debt collector telling it to stop contacting you. If you dispute the amount due, or you don’t believe that it’s your debt, put that in the letter, too. You can use this sample letter.

Telling a debt collector to stop contacting you does not stop the collection, including the filing of a lawsuit against you or reporting negative information to a credit reporting company.

4. Know your rights: Your federal benefits have many protections from garnishment in collection

Many older consumers rely on Social Security or other federal benefits and frequently complained that debt collectors threatened them with garnishment of these benefits. Most federal benefits, such as Social Security, Veterans’ (VA) benefits, and Supplemental Security Income (SSI) benefits, are protected in debt collection. There are exceptions for, among other things, money owed in child support, spousal support, federal student loans, or for federal taxes.

When you receive federal benefits by direct deposit to your checking account, your bank or credit union is required automatically to protect up to two months of these benefits that are directly deposited into your account. If you receive your benefits on a government issued prepaid card, they usually are protected too. Some exceptions may exist for debts owed to a federal or state agency.

If you’re not sure if your federal benefits are being wrongfully garnished, you should seek legal advice.

Here’s how you can find a lawyer:

Learn more about your rights when it comes to debt collection.

You can also:

  • Submit a debt collection complaint online or by calling (855) 411-2372. We’ll forward your issue to the company and work to get you a response, give you a tracking number, and keep you updated on the status of your complaint.
  • Tell us your story, good or bad, about your experience with consumer financial products. We hear from many Americans every day and we’d like to hear your story.