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Medical Bills and Your Credit

Medical Bills and Your Credit

When’s the last time you checked your credit report? Have you watched a medical bill slowly bring your credit scores down? Have you battled the insurance company and medical facility that reported a bill as delinquent? There is a very good chance you can relate to the frustration associated with derogatory reports due to old medical bills on your credit history.

Medical Debt Responsibility Act

There has been new life breathed into the Medical Debt Responsibility Act, which was actually passed by the House in 2010. For some reason, it laid as dormant as those old medical bills do on one’s credit report. Finally, last month, the bill was once again in the spotlight, this time, courtesy of Jeff Merkley (D-OR). It’s now making its way through the Senate. Hopefully, and finally, this bill will pass and provide some relief to consumers who have historically had no say in how these expenses affect the interest rates they’re offered of if they’re even extended credit.

You might be surprised to learn that a medical collection will remain on your credit report for seven years – much the way a foreclosure or other delinquent credit account will. FICO says it treats medical collections the same way it does credit card collections or foreclosures. This is where many say that similarities end.

You apply for a mortgage, credit card or car loan. You don’t, however, apply for an accident with hundreds of dollars in ambulance fees, medical treatment at the hospital or any kind of follow-up. You also have no control over what the “slower than molasses” insurance companies do, either.

Worse, there are reports that the information being reported to the credit bureaus are anything but accurate. According to the American Medical Association’s 2011 National Health Insurer Report Card, commercial health insurers processed 19.3 percent of claims erroneously in 2011, up from 17.3 percent in 2010. Other reports put the number closer to 30%. Either way, these statistics are climbing.

The Role of Rodney Anderson

Imagine being a mortgage broker in a city in Texas. You’re churning along, closing deals and working hard. Soon, though, you begin noticing just how detrimental medical delinquencies are becoming to customers’ odds of getting approved for a mortgage. What do you do?

If you’re Rodney Anderson, you begin keeping tabs on just how these bills are affecting credit histories. In 2008, Anderson began keeping up with customers whose credit was damaged due to overwhelming medical bills. More than half had medical debts that Anderson believed were significantly lowering their credit scores. This meant their interest rates would rise as a result. He also discovered many of those customers not only didn’t know about the delinquencies, but they also didn’t know just how badly it could affect their financial outlook. Anderson thought it was time to do something.

Now, that same Medical Debt Responsibility Act that lay dormant in 2010 is now once again moving forward.

Wide Support

Make no mistake – support for this bill is wide, varied and plentiful. The Mortgage Bankers Association and even the American Medical Association are all on the same page and in fact, they, along with other big name supporters, they’ve penned a letter to Congress. In it, they encouraged lawmakers to move forward with the passage.

The current system punishes consumers regardless of the underlying facts,

the supporters said in an April 16 letter to lawmakers.

How It Will Look

Here’s how the Medical Debt Responsibility will look, along with a few facts, if and when it’s passed:
It would require the removal medical accounts from a consumer’s credit report within 45 days of being fully paid or settled.

According to the federal government, there are close to four million Americans with medical collection accounts (those accounts that went delinquent, even if they were paid).

Currently, the Fair Credit Reporting Action allows the consumer reporting agencies to include this information on a credit report for up to seven years after the date on which it is reported delinquent. When the bill is passed, those delinquent medical bills that have been paid off either through the insurance company or a payment plan made between the consumer and the medical facility, there will be a 45 day timeframe in which the credit bureaus must remove all evidence of it ever existing. This is in line with what the Fair Credit Reporting Act allows for processing consumer disputes.

This could mean big changes for those with medical problems and with insurance companies that are slow to process payments. In fact, it might even serve as an incentive to ensure those payouts are completed within a very specific payout. The last thing they want to do is bring on other people to gather documentation for patients who are trying to prevent their credit scores from taking a hit. It’s definitely a law that is exactly what the framers of the Constitution had in mind: laws for the people that protect the people.

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