Medical Collections & Your Credit Report 

Medical collections are amongst the most common negative items to appear on our personal credit reports. Nearly one in five credit reports contain accounts for unpaid medical bills, which makes it one of the most common credit reporting issues.  

A single collection account can reduce an otherwise strong credit score by as much as 80 to 100 points. Needless to say, if you’re applying for a loan soon (especially a mortgage), this is bad news.

Medical collections can result from a variety of situations. Sometimes, you end up in the hospital because of an emergency, and perhaps you didn’t have insurance. 

Or, maybe a medical treatment was incorrectly coded, and insurance refuses to cover the bill. In other cases, the insurance company might say that a particular treatment was outside of your treatment plan, and so will not be covered.

Whatever the details of your situation, there’s now a bill which has not been paid. After 180 days (6 months) have passed, a medical provider can turn the bill over to a debt collector, who can report the account to credit bureaus. A medical bill can’t appear on your credit reports if it’s been less than 180 days since the account went delinquent.

So, how do you deal with this issue, in order to preserve your credit score? If you’ve got medical insurance, then your insurance provider pays part or all of your treatment costs. How much they’ll cover depends heavily on your insurance arrangement, as well as the specific treatment you required. 

Yet, at the same time, you’re dealing with an unpaid medical bill (hence why it is in collections). How do you resolve this issue?

Getting Your Insurance Company To Pay The Bill 

First, you need to contact your insurance company. Let them know that you have an unpaid collection account, which was not covered by insurance. 

You should contact your insurance company, and see whether they are willing to cover your bill. There are many arguments you might raise with your insurer. 

Perhaps they marked the bill as being out of network, but it really was in network. This is grounds for having the insurer’s decision corrected. Or, you can review your existing plan, and argue that under the terms of the agreement, this treatment actually should have been covered. 

You can appeal the decision, and press the insurance company to correct it. Medical bills often contain errors, and if you know what to look for, you can get these fixed. You could also use an app like Better to assist with this – and they’ll keep a portion of whatever you save.  

To be clear, there is no guarantee that your medical bills are in error, or that your insurance provider has to pay for something they initially refused to cover. Insurance agreements are written to protect the insurance provider, and are often not as favorable for you.

With that said, what do you have to lose? Why not try to get your insurer to pay for the bill? As we’ve explained below, doing so could not only release your obligation on the debt, but also, help raise your credit score. 

What Happens When Your Insurer Pays An Unpaid Medical Debt

If your insurer pays your medical debt, then the debt will be removed from your credit reports. That’s right. 

Under the National Consumer Assistance Plan (NCAP), a legal settlement between the credit bureaus, and the attorneys general of various states, collections paid by insurers are removed from your credit reports. Obviously, having a collection account removed from your credit reports is very beneficial to your credit score.

Keep in mind that if you pay a medical collection yourself, this rule doesn’t apply. The collection account will be marked as paid, but will remain on your credit reports (unless you use the credit repair process to try to remove it). 

While some newer versions of the FICO credit scoring model don’t count paid collections against you, most older versions of FICO (including those used for mortgage lending), do count both paid and unpaid collections against you. Therefore, if you can get a collection removed, simply by having your insurance company pay the debt, your credit score will increase. This could allow you to save money on your mortgage, car payments, or many other credit-related transactions. 

The Final Word

Medical collections are definitely a frustrating issue to deal with. Your credit score takes a hit, and resolving these sorts of credit issues can take time and effort.

See if you can get your insurer to pay. Doing so will not only improve your credit score, but also, give you peace of mind.