Dealing with medical debt

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

As of June 2020, around 17.8 percent of individuals in the U.S. had medical debt in collections, estimated to total up to $140 billion in medical debt. That number might sound high, but there are many reasons why medical bills go unpaid long enough to end up in collections.

For one thing, healthcare expenses are often costly and unplanned, leaving people struggling to pay their bills in a timely manner. And close to a quarter of people surveyed told Consumer Reports they didn’t realize there was even an amount due to be paid.

If you are dealing with medical bills in collections or are worried about a medical bill making it to collections, find out more below.

When does medical debt go to collections?

First-party medical creditors—this is the organization that provided the healthcare service or the agency contracted to handle billing on its behalf—can typically send you to collections at any time. The key is that they must follow their own policies consistently.

In most cases, first-party medical creditors will send you at least one bill. Some may send multiple bills over the course of several months. At some point, if you don’t pay those bills, the account will go to collections. When that happens, it can be reported to the credit bureaus as a medical account in collections.

How do medical bills in collections affect your credit?

There’s some good news: updated credit reporting rules from Equifax, Experian and TransUnion offer some provisions to help protect your credit from unplanned medical bills. The biggest change is that paid medical debt should be removed from all consumers’ credit reports, as well as any medical collection debt under $500.

Additionally, the credit bureaus must wait at least a year after an unpaid medical debt is reported to them before they can add it to a person’s report (the previous grace period was only 180 days, or six months). If you’re facing medical debt, this provides you with time to dispute medical bills, work with insurance companies or settle the debt with the creditor, if you choose, before it impacts your credit score.

If unpaid medical bill collections do end up on your credit report, they may remain for up to seven years. However, they may not impact your score as much as other types of collections. Both the FICO Score 9 model and VantageScore 4.0 model weigh medical debt less heavily than some other kinds of debt.

What can you do about medical debt in collections?

Just because medical bills don’t necessarily have the impact on your credit score that other debts do, it doesn’t mean there’s no impact at all. Consumer Reports notes that almost one-fifth of Americans say their credit has been negatively impacted by medical bills in collections. Try some of the steps below to help resolve the matter and positively impact your credit history for the future.

1. Know what your insurance covers

Start by ensuring that you really do owe this money. Review the explanation of benefits, also called an EOB, provided by your insurance company. You should receive an EOB statement from your insurance company anytime a provider bills medical expenses to your insurance. (Keep in mind that an EOB is not a bill.)

In most cases, insurance companies don’t allow the full amount a provider bills it for. Your EOB will show:

• How much of the bill was allowed and how much was disallowed. Your provider must write off disallowed amounts and typically can’t bill them to you if they agreed to accept insurance payments.
• How much of the bill was paid by the insurance company. This is the amount you do not owe and do not need to worry about.
• How much of the bill is the patient’s responsibility. This is the amount you do owe, according to your insurance. If you’re being billed by the medical creditor for more than this, it could be a mistake.

If you don’t think you owe the amount being sought, you may choose to dispute it. Ask for documentation proving that you owe the amount. If the account is being reported on your credit report, consider sending a dispute letter to the credit bureau in question if you believe there is an error in the reporting.

2. Negotiate with the service provider

Once you understand how much you owe, you may choose to reach out to the provider to negotiate. You may be able to get a discount, particularly if you didn’t use insurance and you can pay a large sum toward the amount billed.

Negotiation with providers may work better earlier in the game, so it may be helpful to not put off this step. Make sure you know what you might owe and how you can pay it even before services are rendered, if possible.

3. Suggest a suitable payment plan

If you receive a medical bill and you can’t pay it all at once, you may ask for a payment plan or suggest an arrangement. If you can pay the bill off in a short period of time, such as a few months, many medical providers will not send you to collections.

4. Use a credit card only if you must

Paying for medical debt with a credit card converts a bill with little to no interest to one that might come with a large amount of interest. Only use a credit card to pay medical bills if you have no other options.

5. Consider seeking debt settlement

If the account has already gone to collections, you may try negotiating a settlement. In some cases, the older a debt is, the less likely the organization is to collect it. This could make it more likely to accept a smaller amount to consider the account paid in full.

Make sure you have the ability to make an immediate payment if you do negotiate a settlement. You may ask for the collections account to be deleted from your credit report in return for making the settlement payment, but not all collection agencies can or will do this. However, they do have to mark the account as paid, which looks better on your credit history than an unpaid account.

Whatever you do when settling a debt, get it in writing. You might need to demonstrate there was an agreement later.

6. Work with a medical billing advocate

If you’re feeling overwhelmed by medical bills and all the information that comes with them, you might consider working with a medical billing advocate. These individuals help you understand your bills, appeal costs to hospitals and ensure your insurance company covers everything it should. That can help reduce the total cost of your medical expenses.

Regularly check your credit report

Staying on top of your credit report by checking it regularly is important, especially because you might never see a notice in the mail about your debt going to medical collections. When you review your credit regularly, you can respond to and handle negative items quickly and proactively, giving you a better chance at protecting or positively impacting your credit in the future.

Sign up today if you want to learn more about your credit report and how you can work to improve your credit.

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