Medical debt? Big changes are coming to the way credit agencies report it – Money Perception


or many consumers, an unexpected health care calamity can quickly burgeon into a financial calamity. Just over half of all the debt that appears on credit reports is related to medical expenses, and consumers may find that their credit score gets as banged up as their body.

Changes in the way credit agencies report and evaluate medical debt are in the works that should reduce some of the painful financial consequences of having a health care problem.

Starting Sept. 15, the three major credit reporting agencies — Experian, Equifax and TransUnion — will set a 180-day waiting period before including medical debt on a consumer’s credit report. The six-month period is intended to ensure there’s enough time to resolve disputes with insurers and delays in payment.

In addition, the credit bureaus will remove medical debt from consumers’ credit reports once it’s paid by an insurer. (Some credit scoring models don’t penalize paid medical debt from any source.) 

The changes grew out of two efforts by states to aid consumers: a 2015 settlement negotiated by New York Attorney General Eric Schneiderman and the three credit reporting agencies and an agreement shortly afterward between the agencies and 31 state attorneys general. The changes will be instituted nationwide.

The 180-day waiting period is “a big step forward toward a more equitable process,” said Julie Kalkowski, executive director of the Financial Hope Collaborative at Creighton University in Omaha, Neb., which provides financial education and coaching to low-income, single mothers.

Rather than attempting to collect past-due medical bills themselves, hospitals and doctors’ offices typically engage collection agencies to dun patients. But the timing on when providers take that step varies widely.

“Without a standardized process, some bills get sent to collections because they’re 30 or 60 days past due as opposed to six months,” Kalkowski said.

In the state with the highest medical debt, it’s the middle class who carries the burden

Kalkowski said several of the women who went through the Creighton program had doctor bills that were sent to collections before they were 60 days past due. The total amount owed in most cases was under $150, she said.

Forty-three million Americans have medical debt in collections that’s adversely affecting their credit, according to a 2014 report by the federal Consumer Financial Protection Bureau, the bureau’s most recent data. The average amount of medical debt in collections was $579, compared with $1,000 for non-medical debt. For 15 million consumers, medical debt was the only blemish on their credit report, the study found. 

Perhaps this isn’t surprising given the growth in the number of people with high-deductible health plans and significant out-of-pocket financial responsibilities for health care, said Chad Mulvany, policy director at the Healthcare Financial Management Association, a membership organization for finance professionals