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July 10, 2020, 10:32 a.m. EDT

The truth about medical bills sent to collections

Knowing the facts can help you manage your credit and medical expenses more proactively

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By Gerri Detweiler


Reuters

If you think you’re immune to damage from a collection account on your credit report because you pay your bills on time, think again. Medical bills that you don’t know about could be hurting your credit—and the odds are not in your favor.

In fact, the Consumer Financial Protection Bureau  reports  that around 31.6% of adults in the U.S. have collections accounts on their credit reports. That’s almost one in three Americans. Medical bills account for over half of all collections with an identifiable creditor. Chances are good that you, too, have a medical bill in collections.

Many times, medical bills hit collections because you didn’t even realize you owed anything. Here are four common medical bill myths that can cost you dearly and the truth you need to manage your credit and medical expenses more proactively.

Your insurance won’t cover everything

It’s a consumer’s obligation to know what they’re responsible for paying. A lot of people are under the impression that their insurance will cover all medical costs, so they don’t owe anything. Due to how a visit or procedure is billed with insurance, this isn’t always the case. It’s always best to be prepared for the worst to prevent anything from being sent to collections.

Insurance companies usually send out an Explanation of Benefits (EOB) before you receive a bill from the provider. Be sure to go through these important documents carefully to ensure you understand what your estimated out-of-pocket costs are. If you have questions about why something wasn’t covered, reach out to the provider and your insurance company.

Your medical bills can be sent to collections, even if you’re paying

Making payments on a medical bill doesn’t necessarily keep it out of collections. If you’re making small payments—or if you make your payment a few days late when you’re under a payment arrangement—you might discover the provider has turned the bill over to collections.

Protections under the Affordable Care Act give patients at nonprofit hospitals time to apply for financial assistance before any “extraordinary collection measures” are taken. But for the most part, any unpaid balance is fair game.

Read: This woman was charged $143,396.66 for a breast biopsy — here are the people working to improve medical billing transparency

To prevent medical bills from going to collections while you’re making payments, set up a payment arrangement with the provider and get it in writing. If you make an arrangement to pay off a debt in six months and the provider agrees to it, they shouldn’t send you to collections as long as you make payments as agreed.

Medical collection accounts are treated differently

This one is good news for you. Medical bills are treated differently than other bills sent to collections—at least as far as your credit report is concerned.

Medical debts are given less weight:  Newer scoring models such as FICO 9 and VantageScore 4.0 weight medical collections less than other types of collections so that they don’t impact a score as much. However, not all creditors use these new scoring models, so medical collections could still hurt your ability to get credit in the future.

Medical debts are given a grace period:  The three credit bureaus now wait 180 days before listing medical debt on your credit reports. This grace period gives you time to figure out payment options before the debt affects your credit scores.

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