43 million Americans strapped with medical debt

By: The VNN Team  //  Money

by Carol Thompson

According to a recent report by the Consumer Financial Protection Bureau nearly 20 percent of U.S. consumers- or 43 million- with credit records have unpaid medical debt.

The findings suggest many Americans are being trapped by debt because they are confused by the notices they get from hospitals and insurance companies about the cost of treatment. As a result, millions of Americans might be surprised to find they are stuck with lower credit scores, making it harder for them to borrow to buy a home or an automobile.

On average, a person with only overdue medical debt owes $1,766. Someone with unpaid medical bills and other sources of debt — possibly credit cards or back taxes — owes an average of $5,638.

The report indicates that much of this trouble could be avoided. About half of consumers who only carry medical debt have no other signs of being under financial distress. But complaints to the CFPB indicate that consumers are routinely baffled by medical bills. Unwieldy insurance and hospital statements leave them uncertain as to how much money they owe, the deadline for payment and which organization should be paid.

An unpaid bill of at least $100 could lower an otherwise sterling credit score of 780 by more than 100 points, the Fair Isaac Corp. told the CFPB based on a previous model it used to calculate creditworthiness.

The firm updated its credit score model in August, putting less weight on unpaid medical bills when predicting the likelihood of repayment. Consumers with only medical expenses in collection would see their credit score increase by a median of 25 points once the new model is fully implemented.

Debt collection is the top complaint the agency has received since September 2013. Out of all debt types, medical collections make up 52 percent of collection accounts on credit reports, far outpacing all other types of debt.

Image: Flickr/BLW Photography