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Medical Debt: Adding Insult to Injury

If you have medical bills that you can’t pay, don’t panic. Despite the pressure that you face from debt-collection agencies to cough up the amount that you owe, you can negotiate with health-care providers and even debt collectors to reduce your debt or develop a payment plan.

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Marcos Desouza was driving home from work on a Friday afternoon in 2007 when a drunk driver smashed into the back of his car. The accident left the 36-year-old Fort Worth, Texas, training manager with chronic back pain. It also unleashed a cascade of medical bills, from emergency-room care on the day of the accident to months of physical therapy.

But Desouza didn’t learn until June 2012 that he faced an additional aftershock from the collision. That’s when he tried to refinance his $118,000 mortgage and learned that $438 in unpaid medical bills from the accident, including one for $40, had shaved 113 points off his credit score. His lower score made it too expensive for him to refinance at 3.25 percent.

“It was shocking,” says Desouza, who never received a notification of a late payment from any health-care providers and believed that all of his bills had been paid through a settlement with the other driver’s insurance company.

Desouza’s story is a cautionary tale at a time when medical debt is a problem for an increasing number of U.S. consumers, because the smallest amount of medical debt—even a bill that you paid late—can have crippling long-term consequences. Unfortunately, federal lawmakers haven’t created better consumer protections with regard to medical debt.

So independent experts whom we interviewed say it’s up to consumers to be proactive if they hope to avoid the problems that are associated with medical debt. And it’s clear to us that the tried-and-true steps that experts recommend that you take to address your medical debt are more valuable today than ever before.

GROWING PROBLEM. Rising medical costs, a continuing shift of health-care costs to consumers and the proliferation of high-deductible plans that require at least $5,000 in out-of-pocket expenses have made dealing with unpaid medical bills an issue for people who have health insurance and individuals who don’t. Most consumers who have medical debt have health insurance, according to The Access Project, which is a health-care advocacy group.

Thirty million Americans who are age 19–64 were contacted by a debt-collection agency about unpaid medical bills in 2010 (the most recent year for which figures are available), which is up from 22 million in 2005, according to The Commonwealth Fund, which is a health-care research organization. More generally, some 73 million consumers in the 19–64 age bracket—40 percent of Americans of working age—reported problems with medical debt or medical bills in 2010, according to The Commonwealth Fund.

Billing Errors Can Increase Medical Debt

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But as Desouza discovered, problems that are associated with unpaid medical bills of any amount can surface long after you had treatment. Medical debt can crush your credit score and destroy your ability to get a loan for a home or an automobile. That’s because after an unpaid medical bill goes to collections, it can remain in your credit history for 7 years, regardless of whether you later paid the debt in full or it went to collections because of a health-insurance billing error. The Access Project says 3.4 million consumers have medical bills on their credit histories that were paid in full.

A single unpaid medical bill on your credit report can add thousands of dollars to the cost of buying or refinancing a home, or it can put credit out of reach altogether, says mortgage banker Rodney Anderson, who is CEO of Supreme Lending. For instance, a homebuyer who has a 670 credit score would have to pay an extra $3,500 in mortgage points to get the same interest rate as a borrower who has a credit score of 780, Anderson says. “People with otherwise pristine credit can have it ruined by a $100 [unpaid medical] bill,” Anderson says. “I see that five or 10 times every day.”

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