What Happens If You Don’t Pay Medical Debt?

Medical debt presents a financial challenge for many in the United States. Unexpected medical expenses can accumulate, leading to balances patients struggle to pay. Understanding unpaid medical bills is necessary, as consequences extend beyond financial obligations. This article explores the progression of unpaid medical debt, from initial billing to legal ramifications.

Initial Stages of Unpaid Bills

When healthcare services are rendered, providers issue a bill to the patient or their insurance company. If insurance covers a portion of the cost, the remaining balance, known as the patient responsibility, is then billed directly to the individual. Healthcare providers generally operate on a billing cycle that allows a grace period for payment, which can range from 30 to 90 days from the date of service or the date the bill is sent.

During this initial period, healthcare providers engage in internal collection efforts. These efforts often include sending reminder notices, making automated phone calls, and sometimes offering options for payment plans. The goal is to facilitate direct payment from the patient or to establish a payment arrangement. Providers prefer to resolve balances directly with patients to avoid the complexities and costs of external collection processes.

A medical bill is typically considered delinquent if it remains unpaid after 90 to 120 days. At this point, the provider may increase their collection efforts, sending more urgent notices or making more frequent calls. Some healthcare systems have internal departments dedicated to managing these overdue accounts, attempting to reach patients to discuss payment or financial assistance. If internal efforts are unsuccessful after several months, typically four to six, the account may be deemed delinquent and prepared for transfer or sale to a third-party collection agency.

Medical Debt Collection Practices

When a medical bill remains unpaid after initial attempts by the healthcare provider, it often transitions to third-party debt collection. These external collection agencies specialize in recovering overdue funds on behalf of creditors. The agency may work for the original healthcare provider on a contingency basis, earning a percentage of the collected amount, or they may purchase the debt outright at a discounted rate, thereby owning the debt themselves.

Upon acquiring the debt, collection agencies typically initiate communication with the individual through various methods, including phone calls and written notices. These communications aim to compel payment or negotiate a settlement for the outstanding balance. The Fair Debt Collection Practices Act (FDCPA) governs the conduct of these third-party collectors, prohibiting abusive, unfair, or deceptive practices. Collectors are restricted from calling at unusual times, using threatening language, or misrepresenting the amount owed.

Debt buyers, who purchase the debt, assume the legal right to collect on it. This means the individual’s obligation shifts from the original healthcare provider to the debt buyer. The specific tactics employed by these entities can vary, but they all operate to recover the purchased asset. Understanding whether the entity pursuing payment is the original creditor or a debt buyer can influence how an individual chooses to respond.

Credit Reporting Implications

Unpaid medical debt can affect an individual’s credit report and score. However, specific rules and timelines govern when and how this type of debt appears on credit reports. A 180-day waiting period is mandated before unpaid medical bills can be reported to the major consumer credit bureaus. This period allows time for insurance processing and consumers to address the bill directly with their provider or insurer.

Recent changes in credit reporting practices have altered how medical debt impacts creditworthiness. As of July 1, 2022, paid medical collection accounts are removed from consumer credit reports. Additionally, effective in the first half of 2023, unpaid medical collection debt under $500 is no longer included on credit reports. These adjustments aim to reduce the negative impact of smaller medical bills on consumer credit.

For medical debt exceeding $500 that remains unpaid after the 180-day waiting period, it can appear on credit reports as a collection account. The presence of a collection account, even for medical debt, can lower an individual’s credit score because it indicates a failure to pay a financial obligation. Both FICO and VantageScore credit scoring models consider medical collections, though some newer versions of these models may weigh medical debt less heavily than other types of debt. The exact impact on a score depends on various factors, including the individual’s overall credit history and the amount of the debt.

Potential Legal Consequences

When medical debt remains unpaid after extensive collection efforts by both the original provider and third-party agencies, creditors or debt buyers may consider pursuing legal action. A lawsuit is generally a measure of last resort, often reserved for larger debt amounts or when other collection attempts have been exhausted. The decision to sue typically depends on the size of the debt, the debtor’s financial situation, and the creditor’s assessment of their likelihood of success in court.

If a lawsuit is filed, the individual will receive a summons and complaint, which are official court documents notifying them of the legal action and requiring a response by a specific deadline. It is necessary to respond to these documents, as failing to do so can result in a default judgment against the individual. A court appearance may be necessary to present a defense or to negotiate a settlement.

Should the court rule in favor of the creditor, a judgment will be issued, legally affirming the debt and the individual’s obligation to pay. This judgment can then be enforced through various means, depending on state laws. Common enforcement actions include wage garnishment, where a portion of the individual’s earnings is directly withheld by their employer to satisfy the debt. Another consequence is a bank levy, which allows the creditor to seize funds directly from the individual’s bank account. In some cases, a lien may be placed on real property, such as a home, although this is less common for medical debt and typically applies to very large outstanding balances.

https://www.consumerfinance.gov/consumer-tools/debt-collection/medical-debt/
https://www.experian.com/blogs/ask-experian/how-does-medical-debt-affect-your-credit-score/
https://www.nolo.com/legal-encyclopedia/can-medical-debt-collectors-garnish-wages-levy-bank-accounts-or-put-liens-on-property.html