Photo by Camilo Jimenez

When job losses skyrocketed earlier this year, the number of uninsured Americans increased dramatically as well. According to Families USA, 5.4 million laid-off workers lost their health insurance between February and May –– that’s nearly 40% higher than any annual loss ever recorded.

Unfortunately, a lack of insurance can quickly lead to medical debt and potentially credit issues as well. Fortunately, medical debt isn’t necessarily treated the same as other types of debt. 

If you or someone you know is struggling with unpaid medical debt, here are a few facts you should know:  

What Happens When You Can’t Pay a Medical Bill?

Unlike lenders and creditors, medical providers generally don’t report information to the three Credit Reporting Bureaus (CRAs) –– Experian, Equifax, or TransUnion. That means a few missed or late payments may not impact your credit initially –– often until (or unless) the debt you owe is sold to a debt collector and they choose to pursue payment. At that point you may begin to see an impact on your credit.

How soon a medical provider may sell your debt to a collector can vary. Some may turn the debt over after the bill is 60 days late, others may wait as long as 180 days, and some may never sell the debt. 

Here is How Medical Debt is Different

There are notable ways medical debt is treated differently than other forms of debt. Here are a few.

Medical debt comes with a grace period.
So what happens once the debt reaches the hands of a debt collector? Unlike other types of accounts, all three CRAs can implement a 180 day grace period before adding delinquent medical debt to your credit report. This is intended to give you time to resolve the debt through insurance, a payment plan, etc. 

Medical debt can be removed from your credit report.
Sometimes medical debt remains unpaid because of an oversight or error by your insurance company. If this is the case, and they eventually pay (or begin paying) the amount due, the item in question generally must be removed from your credit report

This is not necessarily true if you pay off the debt yourself. In this case, the debt may stay on your credit report for up to seven years from the original delinquency date –– the standard amount of time for a debt that goes to collections. However, the impact it may have on your credit can vary depending on the credit scoring model used. According to Experian, FICO 9 (the newest FICO scoring model), as well as VantageScore 3.0 and 4.0 do not take paid off collections accounts into consideration when calculating your score. Older scoring models, on the other hand, may take them into account.

[Note: According to Vantagescore.com, CRAs are required to give veterans an additional 180 days before adding medical debt to their credit report. In addition, medical debt can be removed once paid –– even if it wasn’t paid by the insurance company.]

Medical debt may carry less weight.
Recent scoring models (FICO 9, VantageScore 3.0 and 4.0) intentionally give medical debt less weight when calculating your score. According to research conducted by FICO, this is because “consumers with unpaid medical collections are less likely to default on credit accounts in the future than people with unpaid non-medical collections.” In addition, FICO 9 will not take into consideration any medical debt with an original unpaid balance less than $100.

Just remember, this is not necessarily the case with other scoring models –– and there are many in use.

Medical debt may be easier to negotiate.
Some medical providers –– like nonprofit hospitals in particular –– are already equipped with financial assistance programs to help make medical bills more manageable for those who need it. According to the IRS, they may even be required to determine your eligibility for assistance before selling the debt to a collection agency. 

Providers without designated programs may also be willing to accept less (sometimes much less) than what you originally owed. After all, they would rather not sell the debt to a collections agency if that means accepting pennies on the dollar.

According to AARP, there are a few helpful steps to follow when negotiating: 

  • Examine your bill(s) and compare what you’ve been charged to the information available from a free online tool like Healthcare Bluebook or  FairHealth Consumer. This may give you some negotiating room if what you are being charged is drastically different than the average.
  • Determine what you can realistically pay. 
  • If you have some money currently available, request a discount for making a prompt payment in full. 
  • If you are unable to make a lump sum payment, negotiate a payment plan that fits for your current financial situation –– but make sure to get it in writing. Technically your medical provider can sell any unpaid balance to a collections agency, even if you’re making payments.
  • If you feel you are being unfairly charged, you may also consider speaking to a medical billing advocate –– someone with medical expertise and the ability to negotiate on your behalf. 

The bottom line? It never hurts to ask. And with the often unexpected nature of medical bills, you may find you have a provider that’s sympathetic to your situation.

Here is How Medical Debt is the Same 

While the circumstances in which you acquired medical debt can be very different to how you acquire other types of debt, paying it off can be similar.

It’s up to you to verify the validity of the bill in question.
Insurance coverage may be challenging to understand, but ultimately it’s still up to you to confirm your insurance company is providing the coverage detailed in your plan. This is when it may be helpful to read your Explanation of Benefits (EOBs) when you receive them. 

EOBs are typically sent by your insurance company once a medical service provider submits a claim for payment. Their purpose is to generally explain what they will pay for, per your insurance plan. If you disagree with what is outlined in the EOB, you may want to speak with your insurance company for further explanation.

If you don’t have insurance, it’s still important to confirm there aren’t errors in the way you were billed for the medical care provided. 

According to CNBC, medical billing errors might be more common than you think. In 2016 they reported,  “…a 2014 NerdWallet study found mistakes in 49 percent of Medicare claims. Groups that review bills on patients’ behalf, including Medical Billing Advocates of America and CoPatient, put the error rate closer to 75 or 80 percent.”

Here are a few things to look for when determining the validity of your bill. 

  • Charges for services or medication you didn’t receive. 
  • Coding errors that incorrectly identify the service you received.
  • Double charges or incorrect service dates.
  • Charges for medication or procedures that were ultimately cancelled.

Medical debt may remain on your credit report for up to 7 years.
As mentioned above, unless your insurance company pays, or is in the process of paying, what is owed (or you’re a veteran and you’ve paid the debt yourself), medical collections may stay on your account for up to 7 years. This is generally the same as any other type of account sent to collections. 

The impact on your credit score may diminish over time and, if paid off, some credit scoring models will no longer take them into consideration. But you should be prepared for them to remain for quite some time. 

Medical Bills and COVID-19

While there aren’t specific cost protections in place for the treatment of COVID-19 (even if you are uninsured), there is one upside: Testing for COVID-19 is generally free under the Families First Coronavirus Response Act.

If you have recently lost your job and you’re worried about the prospect of unexpected medical bills, there are a few steps you may want to take. 

Find out when (or if) your coverage will end.
If you’ve been furloughed, your employer may keep you covered under the company’s health insurance plan –– although you may have to pay your contribution out of pocket. If you’ve been laid off, you may be covered at least until the end of the month you were let go. Ask your employer for details about your specific situation.

Join a family member’s insurance plan.
If you’ve lost your job but your spouse is still employed, for instance, you may be able to request to be added to their employer’s insurance plan (even if it is outside the enrollment period). Other family members may be limited in who they can add to their plan, but it doesn’t hurt to ask.

Consider other insurance options. 

  • COBRA
    COBRA insurance allows you to stay on your group health plan after being let go from your place of employment. However, according to the U.S. Department of Labor, “qualified individuals may be required to pay the entire premium for coverage up to 102% of the cost to the plan.”
  • Affordable Care Act Marketplace
    If a recent job loss has resulted in a loss of health insurance, you may be eligible to enroll in the Affordable Care Act Marketplace. Learn more and find out if you qualify here
  • Medicaid
    According to a study by the Kaiser Family Foundation, as of May 2 nearly 27 million Americans were expected to lose their health insurance due to job loss. Of that number, approximately 12.7 million would be eligible for coverage under Medicaid. Find out if you could qualify here.

One More Tip: Keep an Eye on Your Credit

If a medical bill hits your credit report you’ll want to spot it and resolve it as soon as possible. In order to do that, you’ll need to keep an eye on your credit report. 

Now through April 2021 you can check each of your credit reports weekly for free at AnnualCreditReport.com. You can also monitor your TransUnion credit report and dispute any errors you find –– all for free –– directly from your Upturn Credit account. Sign up here.