While consumers can be penalized by credit bureaus for an imperfect payment record on their medical debt, they will not be rewarded for good payment behavior.  Medical payments, like utility payments, do not show up on your credit history when timely made, and therefore do not operate to bolster your credit. Missed or late medical payments, however, will harm your credit rating.

And because medical bills can grow quite large in a hurry following serious illnesses, this places medical debt in a special category. Avoiding the trap consumers can fall into as a result of their medical debt is the subject of this report.

HIPAA Has Hamstrung Communications

The Health Insurance Portability and Accountability Act (HIPAA) is a major piece of relatively new legislation that imposes strong protections for patient confidentiality. The law may have gone overboard in the area of medical debt, however, since it prohibits credit repair agencies and other third parties, often including hospitals themselves, from communicating with third-party debt collectors. As a result, when errors or other problems arise, consumers are largely on their own in working with the debt collectors to resolve them.

Is This A Coverage Notice, An Estimate, Or A Bill?

Medical billing is of course about the most complicated form of billing around. Consumers are often unsure of whether the letters they are receiving from doctors, clinics, insurance company, hospitals, or HMOs are notices, estimates or actual bills that require payment. We are all aware of situations where multiple phone calls are required, often extending for weeks, to resolve the issue of who is responsible for what.

The result, as confirmed by the Consumer Financial Protection Bureau, is that in a majority of cases where medical debt has gone past due, the affected consumers are people with stellar payment histories, and solid credit in all their other affairs. It is simply the complexity of this area that has caused them to delay making payment, because they weren’t sure to whom, and in what amount, actual payment was due.

Medical bills sent to collection average $579, and this amount is smaller, not larger, than many other bills that are referred to collectors, with auto bills sent to collection, for an example, averaging over $5,500. The small average size of these past due medical bills does not save consumers from suffering credit score drops however. Even a $100 unpaid bill can reduce a 680 credit score by around 40 points, and, a bit ironically, the higher your credit score to begin with, the greater will be the drop.

Clearing the Record

What you can do in this situation is to first pay off the debt once you have confirmed that you owe it. Next, contact the credit agency, show proof of payment, and ask to have the black mark on your credit removed. They just might say yes.

The credit bureaus also just might say no. In that case, your options narrow, but it may be worth it to examine the statute that was enacted to assist consumers in similar situations, the Fair Debt Collections Practices Act (FDCPA). Study the law online, or hire a debt repair agency to use its provisions to assist you. The FDCPA allows you to make collection agencies prove that you owe the debt. There may be cases where the collection agency can’t produce such evidence.

A Bigger Problem Than Believed

This problem of medical debt, and its negative effect on credit scores, is not just widespread, it’s epidemic. About 43 million Americans have delinquent medical debt weighing on their credit scores, and this form of debt accounts for just over half of all overdue debts that appear on credit reports.

Medical debts are incurred, by definition, when people are sick and not in the best condition to track their credit profiles, and of course these debts can be quite large, are complicated, and can be hard to pay off even when you are healthy. And the fault, in the first place, can often be discrepancies that arise between doctors, clinics, hospitals and insurers in calculating coverage and financial responsibility.

The result is a mess, and an unfair one for consumers. In response, FICO, which stands for the Fair Isaac Corporation, and which is a central player in calculating credit scores, recently debuted a new scoring model that weighs medical debt more lightly, and that does not factor in overdue payments that were later paid. That is exactly the scenario that millions of otherwise credit-worthy consumers fall into as they delay paying until they have determined their own financial responsibility.

Let’s hope that this change, and future proposed changes by the Consumer Financial Protection Bureau, will relieve honest consumers of this undeserved drag on their credit, and emerge from their medical debt trap.