“The Consumer Financial Protection Bureau (CFPB) released a report that found medical debt has a significant impact on consumer credit, as 43 million Americans have overdue medical debt on their credit reports. The medical debt study can be found at: http://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf

Medical debt is incurred differently than other unpaid bills, such as unpaid phone or utility bills. Medical debt can result from an event that is unpredictable and costly, such as an accident or sudden illness. In addition, consumers are often temporarily responsible for the whole bill until insurance works it out. Consumers can also become responsible for medical debt because of billing issues between medical providers and insurers. Complaints to the CFPB indicate that many consumers do not even know they owe medical debt until they get a call from the collections agency or they discover it on their credit report.

If a medical bill goes unpaid after a certain amount of time, the medical provider may hand over the account to a third-party debt collector. The majority of collections items that end up on consumers’ credit reports are furnished to the credit reporting agencies by third-party debt collectors. When a collection item ends up on a consumer’s credit report, it decreases the consumer’s credit score. These scores play an important role in the lives of American consumers because most lenders decide to grant credit and set interest rates based on them. A collection item generally can stay on a report for up to seven years.

Today’s CFPB study draws on sources such as information from credit reporting companies, consumer complaints to the Bureau, and interviews with debt collection agencies, healthcare providers, and observers of healthcare billing and payment processes. Among the findings:

Half of all overdue debt on credit reports is from medical debt: A staggering 52 percent of all debt on credit reports is from medical expenses. When a debt is past due, a collector may report the consumer’s account to a credit reporting agency. On the consumer’s report, this item would appear as an account in collections, resulting in a credit score drop.
One out of five credit reports contains overdue medical debt: Today’s study found that one out of five credit reports contain medical debt in collections. This means that 43 million Americans have unpaid medical debt adversely affecting their credit report.
15 million consumers have only medical debt on their credit reports: Seven percent of all consumers have medical debt and no other collection items on their reports. These 15 million consumers tend to be more reliable bill payers than consumers with other types of collections on their credit reports. They are much more likely to be consumers who normally meet their debt obligations.

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