We all agree that healthcare costs in the USA are extremely 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.
Anyway, back to our core topic of medical debts and credit reporting of medical bills, and here are our own thoughts on this.
Reporting all unpaid bills, regardless of the balance, to credit bureaus as the final step does two main things
1. Inform future creditors about bills on which a person has defaulted so that they can access their own risk to lend money to that person or not.
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 score than leaving them unpaid.
But all this is changing only for medical debts.
Credit bureaus will soon stop reporting medical debts lower than $500, remove medical line items that have been fully paid, and collection agencies now have to wait for 1 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. They all have come out with their own ways to create roadblocks for medical credit reporting.
Shouldn’t all unpaid debts ( 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 certainly result in many unintended consequences.
- Fewer patients would be willing to pay their medical bills in full. 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, and procedures that have a higher chance of getting paid.
- This also means that cost of medical treatments will increase gradually.
- Some medical practices may try to intentionally inflate the cost of certain 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 that 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 defaulting one type of bill is less different from other kinds of bills. Isn’t this increasing the risk for future creditors who will lend money to the patient without knowing that patient had unpaid (medical) bills in the past?
For example: What if a patient who owes $10,000 in medical bills wants to take a $500,000 home loan. He calculatedly pays his old $10,000 medical bill so that it can be removed from this credit report. Now he can qualify for $500,000 loan. Wouldn’t this increase the risk of the bank/credit union with whom he takes that mortgage?
Suppressing the way 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.