Millions of healthcare patients across the United States are suffering from large sums of medical debt due to the growing costs of medical care, a paucity of insurance and questionable practices of healthcare institutions. It is quite easy for a patient to rack up anywhere from $10,000 to $30,000 for a medical procedure, even if one does have proper insurance. Some of the high costs can be attributed to hospitals overcharging and increasing price inflation.
According to a new study by the Consumer Financial Protection Bureau (CFPB) (PDF), medical debt is ruining the credit reports of consumers and this could affect their approvals for credit cards, car loans, mortgages and at what rate.
Officials at the CFPB say that medical debt is different from other forms of traditional debt because a consumer is unlikely to know the entire price-tag until after the treatment has been performed. In addition, the Federal Reserve notes that medical bills account for more than half of all collections on credit reports.
In fact, many consumers might be unaware that they are in debt – billing and insurance confusions – which means that they would only be notified once a debt collector contacts them or become informed once the debt appears on their credit report.
“When you take out a loan, typically you know how much you will owe and the interest rate you will be charged up front. But with medical costs, you have less visibility. Costs are often unknown until after treatment,” said Rich Cordray, director of the CFPB, in a statement.
Utilizing data between 2011 and 2013, the CFPB studied five million credit reports and discovered that credit scores are underestimating the credit value of consumers with medical debt by roughly 10 points. It was also determined that medical debt appeared to have more of an effect on a credit report than an unpaid cellphone bill.
The CFPB concluded that diminished credit scores from medical debt can cause consumers to be denied a loan and also cost them tens of thousands of dollars over a lifetime of a home mortgage. One way to circumvent this is to have medical debt be broken down and become separated from other debt by credit scoring firms.
It was reported last year that medical bills are the biggest cause of bankruptcies and affected approximately two million people in 2013. This made healthcare the No. 1 cause of bankruptcies and has now surpassed credit card bills and unpaid mortgages.
Although President Obama’s Affordable Care Act (ACA), otherwise colloquially known as Obamacare, is meant to remedy this matter, experts say that it’s not a “panacea” because a majority of Americans have insurance and they’re still struggling. Also, Obamacare is projected to raise the cost of healthcare.
“I don’t think Obamacare is going to get rid of the situation,” said NerdWallet Health Vice President Christina LaMontagne in an interview with CNBC. “The data suggests that already-insured Americans are struggling. With the expansion of insurance, it doesn’t seem like that problem will go away entirely. It’s not a panacea.”
The study found that Americans between the ages of 25 and 64 account for 90 percent of all medical bankruptcies.
