One of the features of modern life that typically goes unmentioned is the control your credit rating has over your ability to access the modern economy. So throw the dysfunctional U.S. healthcare system into the mx, and here’s what happens (boldface mine):
Mike and Laura Park thought their credit record was spotless. The Texas couple wanted to take advantage of low interest rates, so they put their house on the market and talked to a lender about a mortgage on a bigger home in the Dallas-Fort Worth suburbs.
Their credit report contained a shocker: A $200 medical bill had been sent to a collection agency. Although since paid, it still lowered their credit scores by about 100 points, and it means they’ll have to pay a discount point to get the best interest rate. Cost to them: $2,500.
A growing number of Americans could encounter similar landmines when they refinance or take out a loan. The Commonwealth Fund, a private foundation that sponsors health care research, estimates that 22 million Americans were contacted by collection agencies for unpaid medical bills in 2005. That increased to 30 million Americans in 2010.Surprisingly, even after the bills have been paid off, the record of the collection action can stay on a credit report for up to seven years, dragging down credit scores and driving up the cost of financing a home. An estimated 3.4 million Americans have paid-off medical debt lingering on their credit reports, according to the Access Project, a research group funded by health care foundations and advocates of tougher laws on medical debt collectors.
Among them are Nathen and Melissa Cobb of Riverton, Ill., who tried to refinance their home last year. They didn’t qualify for the loan because of $740 in medical bills that had been sent to a collection agency. The Cobbs were surprised because the bills — nearly a dozen small copayments ranging from $6 to $280 — had been paid before they tried to refinance. The collection action took their credit score from good to mediocre and is likely to mar their credit report for years.
…Medical bills make up the majority of collection actions on credit reports, and most are for less than $250, according to Federal Reserve Board research.
The Parks had no idea a billing error they’d sorted out a year earlier — they never actually owed the $200 — could affect their credit
These aren’t large bills, and either they were paid off or never owed in the first place. Yet this is limiting middle-class Americans’ access to capital. No private rating agency should have this kind of power, certainly without clear and transparent processes and the ability to appeal.
Were I a cynic, I might think these foulups are intentional.
No need to worry though: I’m sure Geithner and Holder will get right on this.[/snark]
mikethemadbiologist
I would point out that the record of these sorts of things can last for much longer than seven years. since a particular debt may get sold on to new creditors, each instance of this sort of thing can then affect your rating down the road. my once bounced (and subsequently covered) check that was reported to chexsystems in 1995 made it impossible for me to open a bank account at any bank (including the one that I was working at!) for over 9 years. it turns out that banks only check to see if you are on record with these sorts of services, not what the records contain. The chexsystems policy was that they do not remove records. though the banks will insist that a bad record only lasts 7 years.
To this day I believe that the only reason I was able to finally open a bank account was because the gentleman at the small branch of a large bank I went into with my first paycheck from a new job was such a fan of my then employer, he didn’t bother to do the normal phone call to chexsystems before signing the paperwork.
the most ‘entertaining’ part of the whole process over the years has been the claims of no responsibility on both sides of the record keeping. chexsystems says ‘we just keep the records and make them available, it’s not our responsibility what the banks do with them…’ and the bank says ‘our policy is not to deal with people who are on record with chexsystems’ and in the case of the original reporting bank, ‘we sent a note to indicate that the debt was paid, it’s not our problem if they continue to keep a record of it.’
Hmm. Seems to me a snowball of FAIL.
First, the insurance company and the accounting office for the medical provider. Usually they take approximately a bazillion calls between them to sort anything out, and if you have *more* insurance coverage (i.e. multiple policies), it generally gets worse. It’s a very sick system.
Then the collection agencies, who seem perfectly happy to take on cases for tiny amounts of cash. Seriously, how is chasing down $200 an effective use of anyone’s time and money?
Then the collection agencies who report it to the rating agency, where neither of them has any culpability for incorrect information. You can get your credit report and sometimes get errors corrected, but there’s no penalty for putting incorrect information on there. Obviously, the fine for reporting incorrect information should be at least 3k per incidence. To the person who provided the information- i.e. the collection agency. They can add it in as a fee to the providers if the providers provided incorrect information.
Then there’s the banks relying too heavily on the credit agencies. I’ve got no solution for that, other than to use credit unions. Although there’s probably excellent money to be made in whoever wants to develop a metric that is as easy to check, and demonstrably more correlated with paying off debts.