How Credit Scores Can Become Casualties of Health Care

After a devastating horse-riding accident in January 2017 landed him in the hospital for about 30 days, requiring trauma care and hospital-based therapy, Jeff Woodard considered himself lucky.

The bills amounted to hundreds of thousands of dollars. But Woodard’s employer-sponsored health insurance limited his out-of-pocket maximum payment to $5,000. He reached that “within like a day,” he recalled.

His retired parents relocated from their small town in Massachusetts to help Woodard, now 27, who lives just outside of Denver, through his recovery. With their support, and regular outpatient therapy, he returned to working full time in just two months.

But he didn’t expect another set of payments to haunt him and his parents for nearly a year, ultimately going to collections, and threatening to weaken his credit rating for years more.

While medical bills are a leading source of personal bankruptcy in the United States, a far more common problem is the widespread damage they do to people’s credit. Almost 40 percent of adults younger than 65 reported a lower credit score because of medical debt, according to the most recent Commonwealth Fund analysis, based on 2016 data.

That means greater difficulty with transactions such as financing mortgages, taking out student loans or purchasing cars.

In Woodard’s case, his parents had been deliberate in making sure that all the care their son received was within his insurance network. But it turned out that the trauma doctors at the in-network hospital were not. They were employees of Aspen Medical Management, a Colorado Springs, Colo., physician staffing firm that employs physicians and contracts them out to hospitals.

That generated about $3,000 worth of out-of-network surprise bills, sent directly to Woodard. United Healthcare had paid Aspen the standard rate for in-network care, and Aspen expected Woodard to come up with the rest.

Stunned, Woodard complained to his insurer and Aspen, and filed paper appeals. His parents hectored Colorado lawmakers and filed complaints with both the hospital and various state agencies. But as notices from Aspen and then collections agencies piled up, with threats to report a delinquent bill to credit bureaus, his worry grew.

“I was planning on refinancing my mortgage,” he recalled, a change that he said would have saved him $15,000. “But if I got a bad hit to my credit score, it wouldn’t save me any money. I was paranoid about that.”

Woodard’s persistent appeals succeeded, and his debt was settled just days before it was set to hit his credit report.

“I was going to write [Aspen] a check, but my parents insisted I didn’t,” he said. “I was incredibly lucky — and it sucked.”

When contacted by Kaiser Health News, an Aspen spokeswoman said the company had no comment, declined to provide her full name and then hung up.

An Unpayable Bill, and Years-Long Damage

Even when patients like Woodard emerge with their credit unscathed after a medical crisis, the endless stream of collection letters and threats is a source of concern, often pressuring patients to pay medical bills they should not.

Medical debt isn’t like other financial obligations. It might result from unplanned illnesses and accidents, or because consumers do not fully understand the intricacies of a health plan. Good coverage is not necessarily sufficient to shield someone from considerable costs. It can take months of negotiation and processing for consumers to know what they actually owe.

Left unpaid, these bills are ultimately sent to collections agencies.

Eventually, that medical collection dings the patient’s credit, staying for as long as seven years, depending on state laws.

It’s part of a multibillion-dollar industry: In 2016, the most recent year for which there are figures, agencies collected just under 10 percent of the $792 billion consumers owed in overall debt, according to an industry report.

That same year, about 46.8 percent of collected debts were health care-related, according to data kept by the Consumer Financial Protection Bureau.

Any outstanding bills can have serious ramifications for consumers, explained Chi Chi Wu, a staff attorney at the Boston-based National Consumer Law Center, who specializes in medical debt and credit reporting.

“Let’s say, two years from now, mortgage rates plunge down to 2 percent and I want to refinance,” Wu said. “And the mortgage broker tells me, ‘You can’t get the best rate. Your credit score is 650 and it’s being dragged down from this unpaid collection from this hospital.'”

In that context, even an unmet deductible or copayment can be catastrophic.

Rodney Anderson, a mortgage broker in Plano, Texas, sees this regularly.

Starting in 2008, he noticed that almost half of his clients had weaker credit ratings — and therefore secured less favorable loans — because of medical debt. Even now, it affects “five to 10” of his clients each day.

The most recent federal analysis, a 2014 CFPB report, found that almost 20 percent of credit reports had at least one medical collection account listed. An average unpaid medical collection is about $580.

Protections that took effect in September 2017 could provide some relief.

As a result of a settlement reached by multiple state attorneys general and credit reporting agencies, collections agencies now must wait 180 days before reporting an unpaid medical bill to the credit bureaus to allow consumers adequate time to sort out insurance disputes.

A narrow provision of a banking regulation bill stalled in Congress would extend this waiting period to a full year for military veterans.

Apart from credit reporting modifications, some states, including Woodard’s Colorado, have laws on the books to protect patients from surprise billing, which many experts say trigger these financial issues. But these measures are also limited. They typically prohibit balance billing — charging patients for the difference between a list price and what insurance paid — in only certain care settings, or shield patients from the payment responsibility, though they don’t necessarily stop providers from sending a bill.

This patchwork approach reflects a larger truth: Efforts to legislate meaningful change have foundered.

Anderson, for instance, spent eight years and $2 million of his own money lobbying lawmakers in Washington to keep paid and settled medical debt off credit reports. He has since given up, after strong opposition from the credit reporting industry, which, Open Secrets data shows, consistently lobbied Congress about the legislation he supported.

Unpaid medical debt “is an important metric for lenders and creditors,” said Eric Ellman, senior vice president for public policy and legal affairs at the Consumer Data Industry Association, a major trade group. Citing changes such as the 180-day waiting period and upgrades to reporting systems, he added that “I’m not sure there’s more that needs to be done on this.”

Some observers argue, though, that changes in insurance design have made the issue more pressing.

Private insurance — both marketplace plans and those offered by employers — have shifted so consumers are responsible for more of their health care costs, noted Sara Collins, the Commonwealth Fund’s vice president for health care coverage and access. Middle-class people in particular, she added, are more likely to see unpayable medical bills, exposing them to the risk of medical debt.

A January 2017 study found that 20 percent of patients who went from the ER to the hospital in 2014 likely received an unexpected medical bill. Meanwhile, research published last July found that in 22 percent of emergency room cases from 2011 to 2015 –almost 1 in 4 — patients went to an in-network hospital but were treated by an out-of-network doctor.

The risks are more than just credit rating, Collins warned. Consumers delay education plans, or take out extra credit cards to pay off their bills. They may forestall other medical care, for fear of another unaffordable expense.

By comparison, Woodard got off easy. With the help of his parents, he eventually won the fight and his health plan paid the difference.

Woodard’s debt was settled just days before it was set to hit his credit report. He has since been able to purchase a new car — replacing an older one — with favorable terms that would have been unavailable to him had this situation turned out differently.

His 72-year-old father, Chuck Woodard, is now advocating for changes in how Colorado bills patients.

“No one tells you what your rights are,” Chuck Woodard said. “The only reason this consumer, Jeff, knew what was going on … was he had two retired parents who got pissed off.”

But Jeff Woodard’s case may not be over yet. This March, he received another bill for an ambulance he took to the hospital.

He has started negotiating once more, with his insurance plan and the fire department’s billing company. And based on his experience, he doesn’t expect an easy process.

“I was incredibly well-advantaged, and I barely made it through,” he said.