It’s no secret that medical bills in collection can ruin your credit. In fact, it may lower a score by “100 points or more” for someone with a spotless credit history, according to FICO. As tens of millions of Americans are paying off medical bills over time, the potential for damaged credit is great. Many government agencies are beginning to take notice of this problem. Unfortunately, the consumer credit reporting industry is fighting these efforts for consumer protection every step of the way.
Just last month, the Center for Public Integrity released a report — Cracking the Codes — scrutinizing the use of electronic health records by doctors and hospitals. They documented improper billing of Medicare for more complex and costly services than delivered. Following this report, HHS Secretary noted “troubling indications” that some providers were billing for services never provided and vowed to prosecute. How many bills related to these procedures hit consumer credit reports?
Earlier this summer four United States Senators asked the Consumer Financial Protection Bureau (CFPB) to investigate the issue of medical collections. By late August the CFPB responded, saying they had begun a review of “the treatment of medical debt in both the debt collection and credit reporting industries.” Their investigation is welcome news for the estimated one in four Americans living in families where at least one family member is paying off medical bills over time.
The CFPB is not the only federal body looking into the problem of medical debt. In September, the Subcommittee on Financial Institutions and Consumer Credit of the U.S. House of Representatives Committee on Financial Services held a hearing entitled “Examining the Uses of Consumer Credit Data.” The topic of medical debt was prominently featured in the hearing.
While witnesses acknowledged the prevalence of errors in medical billing, only one felt that it would be inappropriate to correct these errors by suppressing them from credit reports once fully paid or settled.
Rather than acknowledge these errors, a representative of the consumer data industry (which includes the credit reporting industry) chose to gloss over the problems by raising the equivalent of the “Twinkie Defense.” In defense of the industry, the representative cited the 2.4 million consumers who had undergone Botox injections in 2010 and consumers who are making choices for elective procedures and surgeries (noting procedures such as liposuction, cosmetic eyelid surgery, facelifts, forehead lifts, lip augmentation, nose surgery, tummy tucks, laser hair removal), arguing that they shouldn’t get special treatment. Taking a hard line, he said that “these choices are no different than making a purchase in a retail store and the debts should not be deleted.”
Get real, this isn’t about Botox, it’s about cancer treatment, care of chronic disease, and emergencies like a burst appendix. And to make matters worse, these illnesses are often followed by a pile of confusing bills. It is stunning that the consumer data industry simply cannot face the fact that much of the medical payment data included on consumer credit reports is erroneous.
During this election season, it’s reassuring that elected officials from both parties can work together to call attention to a problem plaguing millions of Americans. It is also comforting to know that the CFPB is taking notice of underlying factors that destabilize hardworking families; factors like medical collections. In the words of CFPB Director Richard Cordray, “Consumers who have medical collection reported on their credit file face real-world consequences, they can face a harder time getting a loan approved or even getting a job.”
Hopefully, this federal attention will result in action that requires the removal of medical accounts from credit reports. One legislative proposal currently enjoying rare bipartisan support is the Medical Debt Responsibility Act. It would require the removal of medical collections within 45 days of being fully paid or settled.
Given that the CFPB just initiated its investigation, it is not yet clear what they might propose. But one thing is clear, the need for the consumer data industry to stop stonewalling efforts to address the unfair practice of penalizing people who’ve had medical bills sent to collection. Hiding behind the “Botox Defense” is an insult to the millions of Americans who are now paying the price because of medical collections.