We all agree that healthcare costs in the USA are incredibly high.
Most doctors (and dentists) who do private practice struggle to cope with never-ending government regulations and mandates, a constant fear of frivolous lawsuits, dealing with insurance companies, and loss due to unpaid patient bills. The medical profession is among the most stressful careers out there.
Back to our core topic of medical debts and credit reporting of medical bills, here are our thoughts on this matter.
Regardless of the balance, reporting all unpaid bills to credit bureaus as the final step does two main things.
1. Inform future creditors about bills on which a person has defaulted so they can assess their own risk to lend money to that person.
2. It gives a chance to the borrowers to pay off their bills so that the concerned credit report entry can be marked as “Paid in full.” Paying off reported bills helps borrowers to improve their credit scores instead of leaving them unpaid.
But all this is changing, “only” for medical debts.
Credit bureaus have implemented these new rules:
a) Stop reporting medical debts lower than $500
b) Remove medical line items that have been fully paid
c) Collection agencies must wait one year before medical debts can be reported.
In the last few years, there has been a pushback on how medical bills are reported. These include government rules, credit scoring models, and even credit bureaus have made their own rules.
All these create roadblocks for medical credit reporting, encouraging patients to avoid paying their bills.
Debt is a debt … Shouldn’t all unpaid defaults ( medical or otherwise) be reported to credit reports in the same way?
Then let the lenders decide which one they want to consider or ignore.
Forcefully suppressing unpaid medical debts from credit bureau reporting will undoubtedly result in many unintended consequences.
- Fewer patients would be willing to pay their medical bills. Even those who can pay may decide not to pay in the future.
- The cost of unpaid bills will be passed to patients who can pay.
- Won’t hospitals be encouraged to push patients for procedures with a higher chance of getting paid?
- This also means that the cost of medical treatments will increase gradually.
- Some medical practices may try to intentionally inflate the cost of specific treatments so that accounts receivable from patients is over $500 so that they can be reported to the credit bureaus.
- On the other side, even patients may very well pay a portion of their medical bills, so the outstanding amount is less than $500. Now default on the remaining amount since there is no risk of credit reporting for amounts lower than $500.
- How is medical debt different from any other bill? Why does defaulting on one type of bill differ less from other kinds of bills? Isn’t this increasing the risk for future creditors who will lend money to the patient without knowing that the patient had past unpaid (medical) bills?
For example: What if a patient who owes $10,000 in medical bills wants to take a $500,000 home loan? Now he purposefully pays his old $10,000 medical bill to remove it from his credit report. Then he can qualify for a $500,000 loan. Wouldn’t this increase the risk of the bank/credit union with whom he takes that mortgage?
Suppressing how medical reports are reported to the credit bureaus will surely increase the cost of healthcare, more defaults, more legal mess, and higher risk for future creditors.