Some 43 million people -- or 1 in 5 Americans -- have credit reports marred by past-due medical bills. But many of these black marks may be the result of errors and inconsistencies in how medical debt is reported.
"It is hard for consumers to navigate the medical debt maze and come out with a clean credit report on the other side," said Richard Cordray, director of the Consumer Financial Protection Bureau, on Thursday in discussing a new report by the agency.
Not only is the system for reporting overdue medical bills "haphazard,"according to the federal watchdog group, but some collection companies also "park" medical debts on consumer credit reports without ever notifying people that they have a past-due bill. Some of these debts are owed and paid by insurance companies, according to the CFPB. But in some cases, consumers end up paying the bill anyway to protect their credit record.
Even consumers who are meticulous about paying their bills on time can have past-due medical accounts because of disputes with doctors, hospitals and insurers over the cost of services and what portion of a bill is the consumer's responsibility.
Moreover, there's no standard for how quickly a medical bill can be sent to collections, according to the CFPB. Medical providers sometimes sick collection agents on a consumer within 30 days of sending out the first bill. Other providers wait up to 180 days before they'll send a medical bill to collections.
"Too many consumers are being wrongly pursued by debt collectors for medical debts that they do not owe, or for incorrect amounts due to billing or insurance disputes," said Lisa Stifler, policy counsel for the Center for Responsible Lending. "It is critical that safeguards, such as clear rules that require debt collectors prove that a consumer owes a debt, are in place to ensure that they do not face abusive collection practices that undermine their financial stability or ability to build assets for the future."
The CFPB says that as part of its ongoing effort to ensure accuracy in credit reporting, it will monitor the prevalence of consumer disputes by industry and by credit grantor. Credit reporting companies will start providing the bureau with accuracy reports and will be expected to "take appropriate action" when it appears that the company furnishing the data is more of a problem than its clients.
However, the National Consumer Law Center says further steps are needed. Medical debt is unique because it's often incurred by uninsured and under-insured households, who are charged excessive fees. When insurance companies or the government pay bills for the same service by the same provider, they pay much less, said Chi Chi Wu, a staff attorney at NCLC, a nonprofit group that works to promote economic justice for low-income people. Worse, these same patients are often eligible for charity care or coverage through programs like Medicaid, but the medical system can ding their credit reports before they've had a chance to apply for aid.
The law center is urging the CFPB to require debt collectors to give consumers notice before placing medical debt on their credit reports; give consumers enough time to deal with insurance disputes and billing errors and/or apply for financial assistance before the debt is reported; and bar disputed medical debts from being reported.
Wu also wants Congress to pass the Medical Debt Responsibility Act, which would require reporting agencies to remove settled medical debts from credit reports.
The CFPB put out a consumer tip sheet on ways to avoid problems with medical debt. For consumers who believe they've been billed in error, some companies offer free services that let people look up the rightful owner of a verified debt.