Keeping Your Credit Out of the ICU

Unpaid medical bills can cause surprising and serious damage to your credit report. It’s often a plain and simple case of miscommunication. Your insurance company and your medical provider are in negotiations over paying a recent hospital bill. You think it has been paid, or at least should have been, because you have insurance. The bill is delinquent and then overdue and then sent to collections. All of the sudden you are stuck with a collections record on your credit report for 7 years. Not your fault?…Think again. Medical collections are becoming increasingly common in this era of red-tape insurance companies and giant health care corporations. If you are injured and your insurance company doesn’t pay, you can often be legally stuck with responsibility for the bill. That collections account can stay on your credit report for up to seven years if you don’t prove that it was a factual error. How can you be sure your credit doesn’t end up with a scar? Follow these tips for keeping your credit out of harm’s way: Prevention • Emergency reserve – It’s important to have enough money saved to cover your living expenses for a few months in case you lose your job or unexpectedly land in the hospital. Medical bills can sometimes add up to unbelievable amounts, so you may want to also keep a credit card with a high limit reserved for emergency use. • Be flexible – Flexible Spending Accounts or “Cafeteria Plans” offered through your employer provide an easy pre-tax way to pay for medical expenses. Ask your employer about what plan may be included in your benefits. With this system, you decide how much of your salary to set aside when you sign up for the year. For example, if you choose to pull out $100 a month for the plan, you have $1,200 you can use for medical bill reimbursements that year. • Power of attorney – If things get really sticky, having a trusted spouse or family member with legal power of attorney can help. When you are sick in the hospital, you may not be able to wrestle with the insurance companies and billing offices on your own. Talk to a financial planner or lawyer to have these papers drawn up. Be sure that this person understands the responsibilities and has a copy of your medical insurance policy. Prescription • Get the facts – If you receive a bill you thought was covered, go through your insurance policy with a fine tooth comb to see what you are really responsible for paying. These documents can also outline the best procedures for cutting through the red tape in the billing office. You’ll also want to contact the insurance company and the medical office for more information as soon as you suspect something is wrong with your bill. • Settle your bills – Even if your insurance company is at fault, you will probably be better off paying the medical bill yourself before it’s sent to collections rather than continuing to deny the charge. Paying the bill doesn’t mean you have to stop negotiating with your insurance company over the amount, it just means that you won’t also have to negotiate over a collection account on your credit report. • Righting the wrongs – If the account was sent to collections, avoid “settling” the bill and try to pay off the amount in full. A fully paid collections account is slightly better for your credit than an unpaid or settled account. If your medical bill was sent to collections in error, you still have options. You can dispute the record on your credit report if you can prove that the bill was sent to collections unlawfully (for example – if you were never billed directly for the amount before it was sent to collections).