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The Ladder

A Blog from New America's Asset Building Program

The Medical Debt Relief Act

Published:  February 17, 2010

This post is from our friend Mark Rukavina of The Access Project, which is a resource center for local communities working to improve health and healthcare access.

Financial Burden of Healthcare Costs

It is not surprising that American families are feeling the strain of unaffordable health care costs. Premium costs for family insurance coverage have jumped 131% between 1999 and 2009, well over three times the rate at which wages rose during this time.

Millions of jobs have been lost during the recession putting unemployed workers at risk of also being without health insurance. As employers struggle with economic uncertainty and ever-increasing healthcare costs, many have pushed more of the costs of health insurance and care onto their workers. Trends show an increasing number of Americans living in households where health insurance premiums and out of pocket expense threaten their financial well-being. 

In 2007, the most recent year for which data are available, an estimated 72 million Americans had medical bills problems. A significant portion made paying off medical bills a top priority and therefore struggled to pay for other basic necessities like food, rent or heat.   More than 30 million American adults used up all their savings or borrowed against their homes in order to pay off medical bills. Unfortunately, for many American families this did not stop the bill collector from knocking on their door when they came up short.  
With Medical Billing, Confusion Reigns
Thirty million Americans are contacted annually by collection agencies for unpaid medical bills. Many struggle to pay these bills. Mistakes made by third party payers are common and many people are unclear why their insurance did not pay a claim. Others are simply confused about the amount they owe. More than half of respondents to a recent health care survey said they were puzzled by medical jargon on their bills (have you ever been befuddled by an Explanation of Benefits (EOB) Form?) and one in four said confusion led them to allow bills to go past the due date or be sent to a collection agency.
 A medical bill that is sent to collection can create headaches down the road. If the collection agency reports it to the credit bureaus – typically their practice – it will result in a lower credit score. Once sent to collection and reported, a medical bill is classified as an account in arrears. Currently, the Fair Credit Report Act allows such accounts, even after being paid off in full, to remain on a report for up to seven years. For consumers, this results in lower credit scores and increases the cost of a mortgage, auto loan or the interest rate on a credit card.
 Medical Debtors and Ruined Credit
It is estimated that during calendar year 2008, Americans spent $277 billion on out-of-pocket health care expenses; this is over and above the cost of insurance premiums. No doubt, a portion of this amount was used to pay off medical bills inappropriately sent to collection. Credit scores erroneously lowered by medical bills that have been paid in full hurt consumers. In spite of doing the right thing by paying their bills, these consumers are seen as credit risks. Such inaccuracies in credit reports slow America’s economic recover. 
 One mortgage originator in Texas, Rodney Anderson of Supreme Lending, has seen the detrimental effects firsthand. He was frustrated as customers looking to purchase homes or refinance were deemed risky because of medical accounts on their credit reports. Ironically, many of these medical accounts originally had small balances and were paid in full. Because they had been sent to collection, his customers’ credit scores were wrongly lowered. 
 Using the services of a credit score simulation service, Anderson ran scores for clients after removing zero-balance medical accounts. The credit scores of some of his clients increased by 50 to 100 points after being recalculated by the simulation service. What he found exposed a dirty little secret of the credit scoring world; medical accounts on credit reports can destroy credit even after being paid in full.   
 Consumer Protection
Ohio Congresswoman Mary Jo Kilroy has also seen the consequences of outstanding medical bills. Hearing from constituents challenged by bills resulting from unexpected illness or accidents, Rep. Kilroy decided to take action; she saw medical debt as unique and felt it deserved to be treated differently than other debt. 
 Rep Kilroy has introduced HR 3421, The Medical Debt Relief Act, which amends the Fair Credit Reporting Act. The bill requires that medical debt fully paid off or settled be removed from a consumer’s credit records within 30 days. This proposal enjoys bipartisan support and has nearly 75 co-sponsors in the House. A similar bill is expected to be introduced in the Senate before the end of February. 
 By passing HR 3421, Congress would protect families and ensure them that they will no longer be further compromised after paying their outstanding medical bills. While this straightforward proposal does not fix the healthcare system, it would provide relief for those who’ve paid off their medical debt while Americans await broader health reform. 

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