The reporting of medical debt on credit reports has gotten quite a lot of press lately. The Consumer Financial Protection Bureau has recently done a fairly extensive report that includes a number of findings. One of these is that 1 in 5 Americans has outstanding medical debt on their credit reports. Another is that slightly more than half of all debt in collections is medical debt.
The CFPB makes the point that part of the problem with medical debt appearing on credit reports is rooted in the complexities of the health insurance billing process. No dispute there. The CFPB also wants to enact regulations to change the way that medical debt is reported on credit reports. The goal is to make medical debt less detrimental to a credit score (at least as it is currently calculated) than other kinds of debt. I have a problem with that.
WHAT!?! I’m supposed to be all pro-consumer. How can I have a problem with that? Simple. First of all, there is no such thing as a single credit score. We all have many of them, and they change constantly. Establish rules for how credit scores are to be calculated, and the credit reporting agencies will simply change the way they package the information. Why? Because they exist to serve their clients’ needs, and their clients are people who lend money and collect money.
But, but, but, classifying medical debt on credit reports differently from other (presumably less noble debt) only makes sense! If you do that, than anyone looking at a credit report can tell that this person always pays for his car, he just can’t pay that horrendous hospital bill that his insurance company refused to pay. So, a car lender ought to be able to glance at a credit report and score and tell that this person makes his car payments, so it would be good business to make him a car loan. Right?
Not so fast. If someone applying for a car loan owes $30,000 to the local hospital the fact that he has always made his car payments before is not going to stop the hospital from suing him and garnishing his wages. If the local hospital is taking 25% of the gross off of just about anyone’s pay check (Oklahoma law, only), that could change whether or not he is still able to make his car payment.
Despite popular opinion, credit reports (and credit scores) don’t measure how good a person you are; and the idea of reporting medical debt differently seems to buy into that fiction. An outstanding liability that remains legally enforceable — whether it be medical, taxes, child support or credit cards — is always going to be a threat to someone’s ability to repay a new obligation. Wage garnishments, bank levies or any other form of enforcement action that is available to the creditor will impact on someone’s ability to make future payments. Changing how something is reported or how it is factored into a magic number won’t change that.
The ways to make meaningful changes in your ability to access credit remain the same. First, if your insurance company denies a claim — appeal it. Complain to the State insurance commissioner. Do everything you can to get the claim paid. Second, police your credit report. If something shouldn’t be there, get it removed. If debt has been re-aged or is otherwise no longer enforceable — dispute it. If you owe the money and it really is legally enforceable, then you either need to find a way to wait it out (and hope that they don’t sue you just before the Statute of Limitations runs) or consider a bankruptcy filing. Even if a chapter 7 isn’t the answer, a chapter 13 might be.
Oh, and don’t be afraid to ask for help; and don’t be embarrassed. No one who knows enough about credit reports or the collection industry to be of any use will confuse anything on your credit report with your value as a human being.
Elaine