Insurance payment confusion leads to bad credit reports
Why medical debts shouldn’t count
For many, the road to ruined credit is pockmarked with medical collections, often for tiny amounts or billed in error. The truth is that medical debt rarely indicates whether a borrower is high risk.
By Liz Pulliam Weston
MSN Money
November 19, 2007
The Your Money message board is littered with complaints from folks whose otherwise pristine credit was sabotaged by a medical collection. Sometimes their records were besmirched over absurdly small amounts that nonetheless had big impacts on credit scores.
Medical collections are surprisingly common, at least according to a 2003 Federal Reserve study of consumer-credit reports. Nearly one in three consumers (31%) with a credit report had at least one collection account reported, and more than half of those were medical collections.
The amounts owed weren’t substantial: 36.5% of the medical collections were for $100 or less, and 86% were for $500 or less.
Yet any collection account is considered a major negative to lenders and to the credit-scoring formulas they use. Though the impact of a collection on your scores fades over time, it will shave off points for as long as the negative mark remains on your report — typically seven years.
Your chances of having your credit ruined by a medical bill are soaring for a variety of reasons:
- More people are uninsured or underinsured.
- Medical-debt collection has become big business.
- Medical billing is a mess.
Even when a consumer is covered by insurance, confusion abounds. Doctors and hospitals often insist the consumer is ultimately responsible for the bills, saying medical providers bill insurers only as a courtesy. Yet frequently the providers have agreements with insurers and government agencies to accept discounted reimbursement as payment in full; the providers aren’t supposed to pursue patients for payment.
Meanwhile, insurers are constantly changing what’s covered and by how much, and providers move in and out of covered networks. Providers also claim some insurers deliberately drag their heels on reimbursements, adding to the chaos and uncertainty.
“Insurance companies are often contributing to the false reporting of medical debt,” said (Travis Plunkett, a spokesman for the Consumer Federation of America), as tussles over payment increasingly get turned over to collection agencies.
Comment:
By Don McCanne, MD
So you have excellent coverage. About six months ago you received medical care for what proved to be a minor problem. The care included a couple of office visits, a few laboratory tests, medical imaging, two prescriptions, and you’re fine now.
Since then you’ve received numerous statements from your insurer documenting the physician visits, laboratory tests, medical imaging facility services, radiologist’s fee for interpretation of studies, and documentation from the pharmacy benefit manager. Each statement included many numbers, but the only number that really caught your attention was the dollar amount after the statement, “You are not responsible for paying this amount.” That appeared on several of the forms, though the amount noted was confusing since it didn’t seem to fit with any of the other numbers on the page. In the meantime, you have received statements from each of the medical professionals and health care institutions involved stating that your insurance has been billed and that this is the amount due (the total, non-adjusted charge), but since no payment yet appears you decide to wait until payment is actually made by the insurer and the disallowed amount is adjusted off. Otherwise you really don’t know what you should pay.
Within the past week, you have received notices from two different collection agencies representing two of the billing entities. Since your coverage is excellent, it is clear that there is some error here. What do you do?
The first step is to take out your insurance contract to see what is covered. Check for deductibles, copayments (dollar amount), coinsurance (percentage of the charges), tiering of benefits (different coverage for different levels of products or services), capping of benefits (maximum to be paid under specific categories), amounts to be paid by a fund such as a health savings account, and any other innovative features specific to your coverage. Then check to see if each professional and institution is contracted with your insurer. Since the list you have is a few years old, be sure to obtain a current list of providers. Then determine precisely how much is to be paid by the insurer, how much is to be adjusted off, and how much you are responsible for paying. The set of numbers will likely vary depending on whether or not the professional or the institution is currently contracted. Now retrieve from your records every notice of change in benefits that you received from the insurer at each annual renewal. Go back and change the numbers based on these notices, being certain that you apply the changes in chronological order.
Okay. Now that you’ve done this, you find that you do owe the amounts for which you are responsible after payments were made to the providers and the disallowed amounts were deducted. But the amounts demanded by the collection agencies are greater than the amounts that are your responsibility.
Since obviously there is an error, you now contact the administrative staff of one of the providers that are dinging you. The staff member insists that their ledger for your account is correct and that the insurer has obviously made an error. They don’t have time to help you further and insist that you contact your insurer since that’s your responsibility anyway.
After hours of punching through automated phone systems with endless times on hold, dropped calls, referrals to other departments, you finally end up where you began, and a real person in India tells you that all of their numbers are correct. She explains that the provider apparently did not adjust off the full disallowed amount, assuming, of course, that you did pay the deductibles and coinsurance that you owed. Oh.
So you call back the provider and explain that you will send payment for the deductible and coinsurance that you owe, but you want them to adjust off the balance that was disallowed. Sorry. The account has already been turned over to the collection agency and you will have to deal with them.
The collection agency responds by stating that they have nothing to do with insurance contracts. All they have is the amount that the provider turned over to them for collection, and that is the amount that you must pay. If you want an adjustment made, you’ll have to contact the provider.
Take a break from this one, and start the process over with the other collection agency. (Repeat the last six paragraphs here.)
Enough. Just pay the whole d*** thing and consider later whether to go through the grief of trying to obtain refunds from the providers. But at least this will keep your credit report clear. Sorry. These delinquencies have already been reported by both collection agencies. You can receive a free credit report if it’s been over a year since your last request, but you’ll have to pay a fee to find out how many points were deducted from your credit score.
What is really sad is that, with what you believe to be a really great health insurance plan, and with an honest effort to comply with the rules of your plan, and in spite of considerable personal inconvenience, you can become one of the more than 15 percent of individuals who end up with an impaired credit rating merely because of the administrative complexity inflicted on us by the private insurance industry.
With a single payer national health program, you go to your health care professional, receive your tests, and then follow the treatment program that you decide on after further consultation with your healthcare professional. The bills go to the single payer; you receive a statement of services and payments only to keep the process transparent.
Why are our politicians telling us that this isn’t politically feasible? Do we really want to continue to include screwed up credit reports on our list of the perverse features of an exclusively American health care system?
Do we really want to protect the thriving big business of medical-debt collection? After all, aren’t they merely an extension of the medical insurance administrative profession that we prize so highly?