If you’re dealing with medical collections, you’re not alone. In 2021, medical debt made up 58% of bills that were in collections, and in 2022, medical bills on consumer credit reports totaled a staggering $88 billion. 1 2
To protect consumers from the effects of medical debt, the credit industry recently made major changes to how it treats medical collection accounts. Read on for an overview of these changes, how medical collection accounts affect your credit, and what options you have for getting out of medical debt.
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What happens when medical bills are sent to collections
When you can’t pay your medical bill, your healthcare provider (e.g., a hospital, clinic, or independent physician) may charge off the debt and transfer it to a debt collection agency or even sell it to a debt buyer. At this point, your medical bill becomes a collection account.
When your medical debt is sent to collections, the debt collection agency handling your account will report it to one or more of the three major credit bureaus (Experian, Equifax, or TransUnion). These credit bureaus will then add the collection to your credit report, which will damage your credit score.
However, this won’t happen right away. As of July 1, 2022, medical collections feature a year-long grace period before they appear on your credit report.
In other words, if your medical debt is sent to a debt collector, it won’t appear on your credit report for 1 year. If you pay it off before the year is out, it will never appear on your credit report at all.
Medical collections affect your credit differently than other debts
Your credit score is meant to reflect your reliability as a borrower. In general, if you have a lot of collection accounts, that suggests that you don’t always pay your debts back. That means that lending to you would be a risk, and you’ll have a correspondingly bad credit score.
However, credit scoring companies and credit reporting agencies realize that medical debt isn’t like other types of debt (i.e., credit card debt) because it’s often outside people’s control. After all, racking up unpayable credit card debt is a choice, but no one chooses to get sick.
This means that medical debt isn’t a good measure of your creditworthiness. For this reason, different rules apply to medical collections than non-medical collections as far as your credit is concerned.
Here are the 3 ways in which medical debt affects your credit differently:
Medical collections are less damaging to your credit score
Unpaid medical bills in collection will hurt your credit because they affect your payment history, which is the most influential factor contributing to your credit score.
However, the newest versions of the FICO and VantageScore credit scoring models (like FICO 9 and VantageScore 4.0) weight medical collections less heavily than non-medical collections, meaning that they won’t do as much damage to your credit. 3 4
Medical collections don’t always appear on credit reports at all
In general, medical debt appears on your credit report in more limited circumstances than other types of debt due to several recent changes made by the credit bureaus: 5
- Year-long grace period: As mentioned, medical debts have a grace period of 1 year (365 days), meaning they don’t show up immediately on your credit report. This gives you time to work out payment arrangements with your insurance company and healthcare provider before the debts start affecting your score.
- Exclusion of medical bills under $500: From the beginning of 2023 onwards, medical collections for debts under $500 will no longer be included on credit reports.
You can remove medical collections by paying them
Also as of July 2022, it’s possible to remove medical collections from your credit report by fully paying them off. Once you do, they will no longer be included in the calculation of your credit score.
This is different from other types of debt. When you pay off non-medical collections, they usually remain on your credit report, and continue affecting your credit score in some scoring models.
Why your medical bill was sent to collections
Medical collections can come as an unpleasant surprise, especially if your medical bill was sent to collections without notice or you didn’t know you had an unpaid medical bill at all.
It can take months for medical bills to be sent to a debt collector and even longer for those collections to show up on your credit report, so you could be looking at collections from medical care you received over a year ago.
Here are some peculiarities about medical collections that may answer your questions about why you have one on your credit report.
Medical bills can be sent to collections even if you have health insurance
Unfortunately, health insurance doesn’t always cover all of your medical expenses. It’s possible that even if your insurance covered most of your medical care, there were outlying charges that you were responsible for paying that you didn’t know about.
However, you should still double-check your insurance policy to make sure that all of your covered medical expenses were paid for. Ask for an explanation of benefits (EOB) if you’re unsure. If your insurer or healthcare provider made a mistake, notify them to have the debt covered.
Medical bills can be sent to collections even if you’re paying
Many people who receive a hefty medical bill can’t afford to pay it off in one go, which means paying in installments can be an attractive option. However, your healthcare provider can send your debt to collections even if you were making payments.
Here are some reasons why your medical bill might have been sent to collections when you were already paying it off:
- Your payments were too small
- You missed payments or made late payments, or didn’t finish paying off your bill within the agreed-upon timeframe
Medical bills can be wrongly sent to collections
Billing errors happen all the time, so it’s important to carefully audit your medical bills. Contact your healthcare provider and ask their billing department to go over each item you were charged for.
If you were billed for a service you didn’t receive or that your insurance should’ve covered, ask them to update their records and contact the credit bureaus to have the collection removed from your credit reports.
What to do if you have medical bills in collections
If you have a medical bill that’s been sent to collections, take steps to protect your rights, your finances, and your credit.
1. Check the statute of limitations of your debt
The “statute of limitations” refers to how long it will take before a debt becomes time-barred, at which point debt collectors can no longer sue you over it. The exact amount of time varies by state, but it’s usually somewhere in the range of 3 to 6 years. 6
If your medical debt is past its statute of limitations, then collectors have no way to compel you to pay it—whether or not you do so is essentially up to you.
Note that, depending on the state you live in, making a partial payment (or even saying that you plan to do so) could reset the statute of limitations and expose you to future lawsuits, so do your homework before you decide to pay. 6
2. Dispute the debt if it’s inaccurate
Carefully check the medical collection account on your credit reports (which you can get for free from AnnualCreditReport.com) and any information that your debt collectors send you.
If you notice any errors pertaining to the collection account, such as mistakes in your personal information, the amount you owe, or your billing dates, use this sample letter for disputing medical collections to dispute the account with both the debt collection agency and the credit bureaus reporting the error.
If it turns out that the debt is illegitimate, this will probably be all you’ll have to do—you don’t need to pay debts that you don’t actually owe. Make sure to keep following up with the credit bureau and collection agency to ensure that they do remove the debt from your credit report, as they’re obligated to do.
3. Pay your medical bills in collections
If your medical bills are recent and legitimate, you should pay them if you possibly can. As we’ve said, paying off medical collections will completely remove them from your credit reports.
This means that paying off your collections will improve your credit score, sometimes very significantly—in some situations, your score could increase by up to 125 points when you pay off a collection account.
Moreover, paying off your collections will keep debt collectors off your back.
To pay your medical collections, you’ll need to contact the debt collectors handling your debt. However, before you pay, make sure that your debt collector is legit and that you’ve been charged correctly. You can do this by contacting your healthcare provider directly, reviewing your billing statement, and sending your debt collectors a debt verification letter.
What if you can’t afford to pay?
If your medical bills are too large to pay back—which might be the case if they were sent to collections to begin with—don’t panic. You may be able to negotiate a manageable payment plan or even settle your medical collections for less than the full amount you owe.
You can also work with a medical bill advocate, a nonprofit credit counselor, or a debt settlement company and have them negotiate with your debt collector on your behalf.
4. Check the status of the paid account
Once you’ve paid your medical debt, the account should be updated on your credit report to read either “paid in full” or “settled” (if you negotiated a debt settlement).
Monitor your credit reports to make sure they’re updated correctly. This is important since the information shown on your credit report affects your credit score.
How to prevent medical bills from going to collections
Once you’ve dealt with your current medical bills in collections, try to take steps to avoid ending up in the same situation in the future.
The simplest way to prevent medical bills from going to collections is, of course, to pay them. You may also be able to get your bills covered by insurance or work out alternative payment arrangements with your healthcare provider if you have a good relationship with them.
Paying medical bills with health insurance
To get your medical bills covered by health insurance, you’ll need to file an insurance claim.
Make sure you understand the details of your coverage and when you need to file claims, and contact your insurer if you need clarification about how much you’re expected to pay out of pocket. Medical collections that are paid by insurance won’t appear on your credit reports.
Paying medical bills without health insurance
If you don’t have health insurance, discuss your payment options with your healthcare provider. Medical bills can be negotiated, and your provider may offer assistance.
If you haven’t done so already, check your eligibility for Medicare and Medicaid, which are programs that can cover your medical bills if you have a low income or a disability.
Under the Affordable Care Act, nonprofit hospitals are actually required to offer financial assistance to patients who can’t afford medical treatment. 7 Some healthcare providers also give discounts to uninsured patients or have dedicated funds to help those who don’t qualify for any type of assistance.
