Sidebar: Changes in Medical Debt Reporting

Elsewhere in the business section of last Tuesday's Post Standard was an article, courtesy of the New York Times New Service, on how old medical bills are causing people problems with their credit reports.

One of the people mentioned in the article had presented her dental insurance card instead of her medical card; the doctor didn't contact the woman timely, leading to the bill going to collection. She paid the $742 bill, but in the end, when she got a mortgage, it ended up being 1/2 a percentage point higher than it otherwise would have been without the old medical bill.  That half a point will cost the woman $33,000 over the life of the mortgage.

According to the article, over half of the collection actions that appear on credit reports are related to medical debts.  Now one credit score company, VantageScore Solutions, has decided to ignore these collection actions, as long as the debt has been paid.  According to Sarah Davies, SVP of analytics, research and product management at VantageScore,

There was no intentional decision to exclude a piece of behavior. It was just about what was most predictive.

Apparently some folks in the credit rating business understand that an anomaly - one unpaid bill that eventually gets settled or is paid in full - in a lifetime of payments made on time - does not make a person a bad credit risk.
 
And while VantageScore Solutions (a joint venture of the big three credit reporting agencies) is making this change, there are no changes proposed for FICO, the  more commonly used credit score.  A spokesman indicated that, while they ignore all collections under $100, all other types of reported collections are considered as 'derogatory' blemishes on a person's credit record.

To ignore data that has proven to be highly predictive a person's ability to repay a debt would not be in the best interest of consumers or lenders.

Politicians are starting to take notice.  In their usual, disjointed way, but taking notice none-the-less.  California's Maxine Waters (D), the leading Dem on the House Financial Services Committee, has introduced a bill called the Medical Debt Responsibility Act of 2013.  Among the findings by Congress?

• medical debt collection issues affect both insured and uninsured consumers
• medical debt collections are more likely to be in dispute and inconsistently reported
• healthcare providers increasingly turn to outside collection agencies to help secure payment
• medical bills account for more than half of all reported non-credit related collection actions
• in 2010, 30,000,000 working-age American adults were contacted by a collection agency for unpaid medical bills

The Chairman and Vice-chairman of the Committee,  Republicans Jeb Hensaling of Texas and Californian Gary Miller, are said to be working on their own version of legislation to do the same thing.  I expect that will include at least a couple paragraphs referencing Obamacare, because as we all know there was no medical debt before the Affordable Care Act became law.