Medical Bill Debt Collections Laws: What You Need to Know (Updated 2022)

According to the Kaiser Family Foundation, 65% of Americans say their biggest financial fear is dealing with an unexpected medical expense. 49% worry about their health insurance deductibles. About 45% said it was the cost of their prescriptions. And 40% worry about their monthly health insurance premiums.

These fears are well-founded. In 2019, why did most Americans file for bankruptcy? Medical Debt. According to the Journal of the American Medical Association, collection agencies held $140 billion in medical debt in 2020. Some of it might be yours. Here is what you need to know about how medical debt and collections are supposed to work.

Can Medical Bills Go To Collections?

Absolutely. 

Here’s the good news: Medical debts are treated differently than other types of collections accounts.

How Are Medical Debt Collection Accounts Treated Differently?

Health care in the U.S. is expensive. And debt collectors are going to do whatever it takes to collect debt. Their behavior is governed only by their willingness to follow the rules set up by the FTC.

The credit bureaus, however, treat medical debt collection differently than they do other types of debt and collections accounts.

The major credit bureaus give medical debts a different yeah grace period. Right now, they will give you six months to resolve your debt before the collections account is listed on your credit report. In July 2022, that grace period is extended for another year. This will give you time to pay the debt off or set up a reasonable payment plan.

The three credit bureaus also recently announced that starting in July 2022, they will delete all medical debts on your credit report that were in collections before they were paid. If your credit score has been hurt by medical debt that was eventually paid, this should help your credit score immediately since you no longer will have to wait seven years for that negative mark to fall off your credit report. In the first half of 2023, the agencies will stop reporting medical debts below $500 altogether.

Medical debts “weigh” less. The newer scoring algorithms used by the credit bureaus (like FICO 9 and VantageScore 4.0) give less consideration to medical debts than they do to other debts when calculating your overall score. 

If the debt is being paid by insurance (some insurance policies will still pay on a bill that has been sent to collections), it is removed from your credit report. It won’t stay on there for seven years the way other debts will. 

Your Insurance Won’t Cover Everything

Unless you have a lot of money or an extremely generous employer, your insurance will not cover all your medical expenses. You must understand this before you see your doctor. Make sure to read the Explanation of Benefits with your insurance documentation.

The Explanation of Benefits will tell you exactly what types of medical costs will be covered and by how much. This is where you will learn, for example, if you will have to pay a co-pay before seeing your doctor, whether you have to use an in-network doctor or medical facility, which treatments your plan will pay for (and how much), what your deductible is, etc. 

If you have questions about whether something is covered or want to know why you’re expected to pay out of pocket for a procedure, you’ll need to call your insurance company and ask them. Being proactive can save you a lot of money.

What Kind of Insurance Do You Have?

There are a few different types of insurance, and the type you have will have different rules for coverage.

Commercial

Commercial health insurance is any health insurance policy that is not issued or regulated by a governmental agency. More often than not, this is the type of insurance policy issued by employers. 

Commercial insurance is organized as one of the following:

  • PPO (Preferred Provider Organization)
  • HMO (Health Maintenance Organization)
  • POS (Point of Sale, you wise-acres)
  • LTC (Long Term Care)

Aetna, Blue Cross Blue Shield, and Cigna are examples of commercial health insurance.

Private

Private health insurance can be another way of referring to for-profit “commercial” insurance, but private insurance can also include nonprofit (co-op) insurers. “Commercial” plans generate profits for shareholders. Nonprofit plans focus on reducing costs for members.

Government

You’ve probably guessed that these are insurance plans issued by government agencies at the federal and state levels. You’re right.

Medicare and Medicaid are the best examples of government health insurance providers. Both have specific eligibility requirements. Medicare eligibility usually starts at age 65. Medicaid is for low-income families.

Uninsured

You are not covered by a commercial/private or government insurance plan. This doesn’t mean that you can’t receive care. There are some options. You will just have to find a way to pay for it (more on this later).

The Four Types of Health Insurance Plans

As previously written, commercial health insurance is organized in a variety of “plans” or “networks.”

Preferred Provider Organization (PPO)

From Healthcare.gov:

“A type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan’s network. You can use doctors, hospitals, and providers outside of the network for an additional cost.”

Health Maintenance Organization (HMO)

HMOs are set up like PPOs, but they have more rules and restrictions. Like with a PPO, you’ll be assigned to a specific network of doctors and providers. You’ll have a Primary Care Physician (PCP) within that network. 

You will always have to see your PCP first, regardless of the type of care you want or need. If your PCP determines that you need more specialized care, they will give you a referral to an in-network specialist who will take over from there. 

There’s not a lot of choice within an HMO, but they tend to be cheaper than PPOs.

Health Savings Account (HSA)-Qualified High-Deductible Plan

HSAs are sort of like individual retirement accounts, but for your health. The money you contribute to them is deducted from your paycheck before taxes are taken out. It gets stored in a special savings account that can only be accessed for healthcare-related costs. Sometimes your employer will deposit a lump sum into your account each year or quarter to help offset some of your deductible costs.

Unfortunately, HSAs are not universally available yet. Only people who have a health plan with a high deductible (HDHP) qualify for them. There are also limits to how much you can contribute to your HSA each year. 

Indemnity Plans

Indemnity plans are insurance plans that do not limit you to a PPO or HMO network. They also do not require you to have a PCP. Instead, they promise to cover X% or $X of your service costs, and you agree to make up the difference. If you want a lot of freedom to choose your own doctors and specialists, this is the type of insurance plan you want. 

There are, of course, some important drawbacks to indemnity plans. The deductibles are usually higher. And you can be charged a whole lot more for your care because your provider won’t be under contract to follow the rules for “reasonable and customary” charging

Whatever type of plan you choose, it is important that you always scrutinize your medical bills. You don’t want to get gouged like this Texan was. He was charged $54,000 for a COVID test! He fought the charge, and his insurance ended up covering his bills.

Never assume that a charge listed on your bill is legitimate. Ask questions, especially if something seems ridiculously expensive. Even if you don’t end up paying anything out of your pocket, racking up huge bills will raise your coverage costs for the next year. Health insurance and car insurance are a lot alike in that respect.

What is Charity Care?

Charity care is healthcare that is provided either for free or for very little cost to people who can’t afford treatment. The treatment must be medically necessary and can even be added to an existing insurance plan to cover anything that insurance doesn’t cover.

The Affordable Care Act requires nonprofit hospitals to offer charity care if they want to be able to keep their nonprofit status with the IRS.

How Do I Qualify for Charity Care? 

This is going to vary from hospital to hospital. It is typically based on your income, which the hospital will verify via:

  • W-2s
  • Paystubs
  • Tax returns
  • Unemployment statements
  • Social Security statements
  • Bank records
  • Documentation provided by the state’s social services department 

Medical Bill Collections Laws

Legally speaking, medical bill collectors must follow the same laws and rules as every other type of debt collector. 

What Debt Collectors Can and Can’t Do

The Federal Trade Commission has strict rules about what debt collectors can and cannot do. Those rules are clearly stated in the Fair Debt Collection Practices Act (FDCPA). For example: 

  • They must identify themselves as debt collectors in all communications with you.
  • Debt collectors cannot threaten you or use abusive language.
  • They are not allowed to harass or stalk you. 
  • They cannot call you before 8 a.m. or after 9 p.m. your time.
  • They cannot notify your employer or contact you at your place of employment.
  • At your request, they must provide a debt validation letter to you within 30 days of their first contact.

What should you say when the debt collector calls about your medical bills? Get some advice from former debt collectors:

Does Medical Debt Expire?

Despite what you have probably seen on Facebook, the debts you owe do not magically disappear completely after seven years. They only fall off your credit report. You are still responsible for that debt. Which happens after a debt falls off your credit report will depend on the statute of limitations laws in your local area. But you have a few options for medical debt relief.

What Happens When Medical Bills go to Collections

When medical debt is sent to collections, the collection agency cannot report that debt to the credit bureaus as past due until after the grace period has expired. If you’ve resolved the debt or set up a payment arrangement (and kept up with it) within that time, they might not report it at all. This varies by lender or collector, though.

Should I Pay Medical Bills in Collections?

If you have verified that the debt is yours and the amount is accurate, then paying any off debt that’s in collections is a good idea. Doing so will help raise your credit score and help you build a solid credit history. That solid history will be helpful if you ever want to apply for a loan or a line of credit. 

This will be particularly true after July 2022, when the credit bureaus said they will update credit reports to remove all medical debts that were paid after they were sent to collections. That’s about $70 million that has been dragging down Americans’ credit scores.

How to Get a Medical Bill Out of Collections

Once your medical debt has been sold to a collections company, they are unlikely to sell it back to your provider. If the debt is still within the grace period or is being paid by insurance, you should notify the credit bureaus about the error and have it removed. 

The dispute/reporting process is simple. You can even do it online. Each of the credit reporting bureaus has instructions to walk you through it. 

Here’s a link to the Experian dispute instructions.

Here’s a link to the Equifax dispute instructions.

Here’s a link to the TransUnion dispute instructions.

Set Up a Payment Plan

Medical providers would rather get payment from you directly than sell your account to a debt collector. Talk to your provider about setting up a payment plan to keep your account from being sold. Believe it or not, most will want to work with you.

Whatever plan you set up, get it in writing. Have your provider draw up a payment plan contract that you can both sign. It’s a good idea to keep both a digital and a physical copy of your contract.

If you can’t afford to pay your whole bill, talk to your provider about their financial assistance policy. If the practice is nonprofit, they likely have some form of charity care available to help you cover costs. Even if they are a for-profit practice, they might have some sort of program in place that can help you.

Should I Pay Medical Debt with a Credit Card?

Can you pay off medical debt with a credit card? You sure can. Should you, though? Absolutely not.

Credit card companies do not care where the debt comes from. It is treated the same as every other purchase you make. It is subject to the same interest rates. Worse, that grace period goes away. 

You will pay less and have much more flexibility and protection if you set up a payment plan directly with your provider.

Even if You’re Paying, Your Bill Could Go to Collections

There is a long-standing myth that they can’t be sent to collections as long as you are paying something on your medical bills. Even as little as $5 can keep your account in-house.

Again: THIS IS A MYTH.

It is also why you need to set up a definite payment plan with your provider and have that plan in writing. That way, if you’re making your agreed-upon payment amounts within the agreed-upon time frame, you shouldn’t have to worry about dealing with collections.

This is true unless you live in Maryland, which has a new state law limiting how medical debts can be collected.

Another important bit of information you should keep handy is this: If you are having trouble paying your bill and your hospital is a nonprofit, the Affordable Care Act gives you time to apply for financial aid before the hospital can send you to collections. 

What is a Statute of Limitations?

In this case, a “statute of limitations” is the amount of time a creditor or collection agent has to sue you to force you to pay your debts. Each state has its own statute of limitations laws. For example, in Texas, the limit is four years. In Oregon, the limit is six years.

Unfortunately, these laws only apply to legal proceedings. Once the time limit is up, the collector can no longer take you to court. 

They can, however, continue to call you, send you mail, etc. And if you do make a payment, the time limit is reset.

They can also reset the time limit by selling your account to another debt collection company.

How Unpaid Medical Bills Affect Your Credit Report

Most medical providers don’t report patient accounts to credit reporting agencies. This means that if you can keep your account in-house, it probably won’t show up on your credit report. Work hard to keep your account in-house. Apply for financial aid. Set up a payment plan and stick to it. Ask about charity care.

Once the medical debt is sold to a collector, it will get reported to the credit bureaus. And this is all perfectly legal because the only thing your medical provider sells to the collector is your debt. All of your private medical information stays in-house. Once a debt collector owns your debt, your financial responsibility is not your medical providers, it’s to them. 

And, as soon as your grace period is over, it will show up on your credit report, along with any progress you’ve made to pay down that debt. It will stay on your credit report for up to seven years. This can do some significant damage to your score. 

One study done by the Consumer Financial Protection Bureau (CFPB) shows that, though people whose debts are mostly medical are more likely to stay current with their payments, their scores aren’t that much higher than people whose debts are mostly non-medical in nature. 

So, even though medical debts are weighed slightly less by the scoring algorithm, it doesn’t seem to have a meaningful impact on your score. Collections are collections, and collections are bad. 

How Can I Prevent Medical Bills from Ending Up on my Credit Report?

Unfortunately, this is not as simple as you might think. More work is involved than the usual “just make your payments on time!” advice you probably anticipated. With medical debt, there are extra steps you need to take. 

  • Consult your insurance company. Try to negotiate any unpaid parts of your bill. Some insurance companies will retroactively approve coverage if you can prove that your treatment was a medical necessity (ask your doctor to help with this). Insurance companies can also cover costs after a medical bill has been sent to collections. 
  • Try to negotiate payments for unmanageable bills. Medical practices would much rather work with you than with a collection agent or debt buyer.
  • Are you bad at negotiating? Hire a billing advocate to negotiate on your behalf. Many hospitals and medical clinics have someone on staff for this, but you could also hire one of your own.
  • Try crowdfunding. Even if you can’t raise the full amount due, you might be able to raise a significant chunk. Use that to help make your case for a payment plan for the remainder due. 

The Bottom Line

PWC’s Health Research Institute reports that the cost of treating a patient will rise by 6.5% in 2022. That’s pretty scary for so many people who are already afraid of their medical bills. 

Even so, you must stay healthy! Don’t put off your medical care. Preventative care, in particular, is the best way to reduce your chances of dealing with hefty hospital bills. Take care of your health now — as we’ve proven, you will have resources to help you with the money later. 

FAQs 

Is Reporting Medical Debt a HIPAA Violation?

Generally speaking, the law says no. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a federal law that required the creation of national standards to protect sensitive patient health information from being disclosed without the patient’s consent or knowledge. Reporting medical debt does not violate HIPAA. HIPAA does not cover a patient’s financial status, only their health. And while their financial payment history can impact their health, it’s not generally considered a medical or health-related issue in the eyes of the law.

How Long Can Medical Bills be Collected?

This depends on where you live. The statute of limitations varies from state to state. Most states’ statutes are between 3-10 years. 

How is the COVID-19 Pandemic Affecting Medical Debt in America?

This is a complicated answer. Here’s the short version: It’s raising the cost of pretty much every aspect of medical care. On the plus side, the rising amount of medical debt during the pandemic led the three credit bureaus to extend the grace period to add unpaid medical debt to your credit report from six months to one year.

What Should I Do if a Debt Collector Sues Me Over My Medical Debt?

Don’t try to handle this on your own. Medical debt lawsuits can involve a lot of different parties: you, your insurer, your doctor, the practice’s billing department, the collection agency, etc. Hire a lawyer to help you. If you can’t afford to hire a lawyer, contact your state bar association about finding someone to help you pro-bono or at a reduced cost.