CFPB Report: Medical Debt has Significant Impact on Credit Scores
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December 11, 2014

A report released Thursday by the Consumer Financial Protection Bureau (CFPB) found that medical debt has a significant impact on consumer credit.

Many of the 43 million people with medical debt on their credit report were unaware that they had unpaid bills until they were contacted by a collections agency. New requirements by the CFBP are intended to help improve credit accuracy.

According to a statement from the Bureau, consumer reporting agencies will be required to provide regular accuracy reports to the CFPB on how consumer disputes are being handled.

Unlike other kinds of debt, there is often a period of time where a consumer is responsible for a medical bill while insurance company processes the claim, or while the insurance company and a provider iron out any billing issues. The industry lacks standardized practices for low long a bill can go unpaid before it is sent to collections. In some cases it's 30 days after the first bill is sent, while in others it's 180 days. A bill could go to collections or be parked on a consumer's credit report before the insurance company has finished processing the claim. By that point, the consumer's credit score may have already dropped. A collection item can stay on a consumers' credit report for up to seven years.

Exacerbating the problem is how medical debt is billed. An emergency trip to the hospital can result in a number of different bills from a number of different providers, some of which may not even be in a patient's insurance network. How much a patient has to pay also depends on if they've met their out-of-pocket cap. As a result, patients might not know how much medical debt they are required to pay.

Credit reporting companies will be required to file accuracy reports including which furnishers have an outsized number of consumer disputes, industries with the most disputes and furnishers that have a particularly high number of disputes relative to their industry peers.

More stats from the report:

Half of all overdue debt on credit reports is from medical debt: 52 percent of all debt on credit reports is from medical expenses. When a debt is past due, a collector may report the consumer's account to a credit reporting agency. On the consumer's report, this item would appear as an account in collections, resulting in a credit score drop.

One out of five credit reports contains overdue medical debt: One out of five credit reports contain medical debt in collections. This means that 43 million Americans have unpaid medical debt adversely affecting their credit report.

15 million consumers have only medical debt on their credit reports: 7 percent of all consumers have medical debt and no other collection items on their reports. These 15 million consumers tend to be more reliable bill payers than consumers with other types of collections on their credit reports. They are much more likely to be consumers who normally meet their debt obligations.

Average reported medical debt is $579: The average unpaid, non-medical collections item on a credit report is $1,000; the median is $366. Unpaid medical collections are smaller, with an average of $579 and a median of $207. These figures contrast with the much larger amounts that are due on credit cards or student loans that are seriously delinquent. Such accounts average several thousand dollars.

More information on how to deal with medical debt, before and after it gets on a credit report can be found here.