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Medical debt confounds even the experts

Fred Williams

Medical costs are so complicated, they sometimes even stump the experts.

When Tom Gavinski started working for Sears in Minneapolis years ago, he paid $5 a month for an HMO “that covered everything,” he said. “Now I have a $6,000 deductible.”

These days, Gavinski heads the health care business at a Minnesota debt collection company. He’s also on the board of directors of ACA International, the debt collectors’ trade group. But medical bills can still surprise him. He recently went in for a preventive procedure, thinking he understood his coverage, then received an unexpected lab bill. “We’re patients, too,” he said.

Medical debt confounds even the experts

Gavinski told the story during a field hearing on medical debt collection held last week by the Consumer Financial Protection Bureau in Oklahoma City. The discussion focused on the fragmented system — involving consumers, insurers, debt collectors, doctors and hospitals — where medical bills can slip through the cracks.

Lisa Stifler, policy council at the Center for Responsible Lending, said that coverage questions about her first child’s premature birth prompted her insurer to audit her account, checking a year’s worth of her claims for mistakes. “It’s hard for health care consumers to adequately calculate what their costs may be,” she said.

CFPB Director Richard Cordray shared a medical bill nightmare from the agency’s complaint archive. A Connecticut man named Harold got a bill for lab tests after a doctor visit, despite having full health insurance. “After going back and forth with his insurance company about this charge, which he had never incurred before, he finally gave in and paid the bill out-of-pocket,” Cordray said.

That didn’t end Harold’s problems though. Months later he discovered the bill for blood work sat on his credit report as an unpaid obligation. Even after Harold sent proof of payment, the collector kept putting the bill on his report.

Cordray’s agency is taking aim at such debt collection practices that can turn medical bills into a credit disaster — even for people who have insurance. Of the 43 million Americans who — supposedly — have unpaid medical bills, 15 million have little or no trouble paying their other bills. Maybe they, like Harold, were stung by a collector who used the credit report as leverage without checking the soundness of the debt. The typical unpaid medical bill is only about $200, the CFPB found.

“It’s unfair to ding people’s credit for inefficiencies in the system,” said Mark Rukavina, principal at the consulting firm Community Health Advisors.

There are more health care bills in the hands of collectors than bills from credit cards, phone companies and all other businesses put together, the CFPB said in a study published last week. Of course, having an overdue bill in collections damages your credit score, making it harder to get loans and driving up the interest rate you’ll pay.

“At a minimum, consumers should have a shot at disputing these surprise bills, before they wind up damaging their credit,” said Blake Hutson, senior associate for health care reform at Consumers Union.

Cordray announced a new initiative that should help. For the first time, the CFPB will require credit bureaus to monitor businesses — including doctors and hospitals — that generate the most disputed bills. Credit bureaus should “investigate the source of the disputes, identify any problems, and take necessary action,” he said. They should even go so far as to reject information from error-prone businesses.

It is the CFPB’s second push aimed at medical debt this year. In May, the agency published a study showing that overdue medical bills weigh unfairly on credit scores. FICO agreed and distributed a new scoring formula called FICO 9, which is now being tested by lenders for accuracy, FICO scoring executive James Wehmann said.

Consumer advocates applauded the progress, but said medical costs remain a long way from being consumer-friendly — what with out-of-network pitfalls, inscrutable deductibles and prices that are clear as mud.

“I can’t think of another setting where we access goods and services and not have any idea what it’s going to cost,” Rukavina said.

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