Congress to Ban Medical Debt From Credit Reports?

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There’s a movement afoot in Washington to curb one frustrating category of debt that can simply ruin a person’s credit report: medical debt.

But if the Senate acts on a recently passed House bill, such debt would not be allowed to be factored into your credit report. The bill seems like a big benefit for consumers (and a pain in the neck for health care providers) — but will it pass?

Formerly known as H.R. 3421, the legislation would prohibit credit reporting firms from including medical debt on a consumer’s credit scoring profile. It would “exclude from consumer credit reports medical debt that has been in collection and has been fully paid
or settled”.

In plain English, that means if you settled a medical claim then credit scoring agencies would have to abandon their long-standing practice of including the existence of such debt — even after settlement — on consumers’ credit reports. The bill would impact medical debts that were discharged more than 45 days before the credit report is issued.

According to a study from the Commonwealth Fund, 72 million Americans had some form of medical debt in 2007, while 28 million were contacted by collections agencies for unpaid bills.

Yet even when a consumer pays off a medical bill that’s delinquent, it still shows up on his or credit report as a "debt in collection." The delinquent medical bill may stay on a consumer’s credit report for several years, and can significantly damage a credit score. That not only results in a higher risk of being rejected for credit, a lower score can mean higher interest rates on this like new home, new cars, credit cards, and student loans.

Medical bills by their very nature tend to confuse consumers, many of whom may not even realize what they’re being charged when they walk out of a doctor’s office, medical clinic, or hospital.

“Medical debt has a third party biller, called an insurance company,” credit advocate Rodney Anderson, a Dallas-based mortgage banker and a big supporter of the legislation, told WalletPop. “That makes it very complicated and confusing for consumers. Most times we walk out of a hospital or doctor’s office, there’s no checkout line specifying your exact bill. We don’t know exactly what we owe, nor do we know what the insurer will pay.”

Anderson adds that since the U.S. medical billing system is “flawed and not accurate” more consumers wind up disputing medical bills, even as they wind up on their credit reports.

Financially vulnerable Americans could certainly use a break. According to the website CreditReport.com, 43.4 million Americans now have credit scores under 600.

But that number could shift higher if, as expected, H.R.3421 becomes the law of the land.

The bill was sent to the Senate on September 29, where it sits for review on the Committee on Banking, Housing, and Urban Affairs. Reportedly, H.R. 3421 has widespread bipartisan support, and while there are no guarantees in Washington, it looks like a good bet for passage.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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