Change sought to remove paid medical debt from credit reports

Medical debt is a source of stress for many people, especially considering the confusion that can surround insurance coverage, deductibles co-insurance and co-pays, as well as the financial struggles that can result from an unanticipated illness. When medical debt is sold or referred to a debt collector, that action can remain on one's credit history for years, even after the debt is paid. One credit reporting agency and some legislators are seeking to change that, though.

Credit reporting company says it will ignore paid collection actions

In the spring of 2013, VantageScore Solutions, a joint venture of three credit reporting agencies, announced that it will no longer consider paid collection actions when generating a credit score. Instead of reflecting an attitude of fairness toward consumers, however, the company said it is making this change because paid collections are not as good at predicting future defaults as unpaid collections are, in combination with other factors, according to the New York Times.

It is estimated that half of all collection actions are related to medical debt, and frequently that referral is the result of a billing error. The American Medical Association reported that the "error rates for private health insurers on paid medical claims" were 19.3 percent in 2011 and 9.5 percent in 2012, according to its National Health Insurance Report Card issued in 2012. This means that, on average, nearly one in 10 paid medical bills were referred for collection in 2012.

Legislators seek to remove paid medical debt from credit scores

Regardless of the reason why medical debt is present in one's credit history, many people think it is unfair to include paid collection actions when calculating one's credit score. A group of federal legislators is currently seeking to address the problem of medical debt through the proposed Medical Debt Responsibility Act of 2013 and related legislation. The New York Times reports that the Act would require credit reporting agencies to remove fully paid or settled medical debt information from a consumer's credit report within 45 days of the debt being paid or settled.

These changes may help people with paid medical debt, but there are still many Americans who are unable to pay off their medical bills. When facing insurmountable medical debt and other bills, filing for bankruptcy may help. Through bankruptcy, you may be able to discharge your debt or develop a plan to repay the debt at a reduced rate over three to five years. If you have overwhelming medical debt, contact a knowledgeable bankruptcy attorney to learn more about your debt-relief options.