New Jersey bankruptcy Article

The New York Times – 5/4/12
By Tara Siegel Bernard

When Ray White’s son was about 9 years old, he struck a tree branch while riding his bike. Within minutes, an ambulance whisked him off to the emergency room. The boy recovered, but many months and phone calls later, Mr. White’s insurance company still had not paid the $200 ambulance bill, even though the insurer had assured him it was covered. He finally decided it was easier to pay it himself.

But by then, it was already too late. Unbeknown to Mr. White, the debt had been reported to the credit bureaus. It was only when he and his wife went to refinance the $240,000 mortgage on their home in Lewisville, Tex., last month — nearly six years after the accident — that he learned the bill had shaved about 100 points from his credit score. Even with no other debts, a healthy income and otherwise pristine credit, the couple had to pay an extra $4,000 to secure a lower interest rate.

“It wasn’t like I ignored it,” said Mr. White, 47, an executive in Internet advertising. “It’s not like I’m a credit risk in any way, shape or form.”

Even people with good insurance coverage know how hard it can be to figure out how much they owe after a visit to the doctor or, even worse, the emergency room, which can generate multiple bills. But as patients become responsible for a growing share of costs — not just co-payments, but also deductibles and coinsurance — bill paying is becoming ever more complex.

On top of that, more medical providers are using collection services and turning to them more quickly than they have in the past, some experts say.

“It used to be that the mantra was ‘gentlemen and physicians rarely discuss matters of money,’ ” said Dr. Jeffrey Hausfeld, an otolaryngologist and plastic surgeon who now co-owns FMS Financial Solutions, a collection agency that specializes in medical debts. “But that has changed now.”

The reason is that the portion of the bill that patients owe has become a larger percentage of medical practices’ and hospitals’ revenue, said Mark Rieger, chief executive of National Healthcare Exchange Services, which offers software to help providers manage billing. “They are getting increases in their fee schedule amounts, but their revenue is declining because more of the responsibility is being shifted to patients,” he said.

Medical providers collected no more than 8 percent of their revenue from patients about 10 years ago, he said. Now, it is closer to 20 percent, or even 30 percent, in some markets.

Like Mr. White, people who fail to pay or respond to a medical collection agency in time — whether intentionally or not — may be surprised to learn, often much later, that it left a black mark on their credit record.

FICO, which produces one of the most popular credit scores used by lenders, said it viewed different types of collection agency accounts — medical-related or otherwise — as equally damaging. For someone with a spotless credit history, “it wouldn’t surprise me if their score dropped by 100 points or more,” said Frederic Huynh, a principal analytic scientist at FICO. And the blemish does not entirely disappear for seven years.

Consumer advocates argue that this is unfair. After all, medical debt is usually something people do not volunteer for, and billing errors and figuring out who owes what can often take months. According to the American Medical Association’s 2011 National Health Insurer Report Card, commercial health insurers processed 19.3 percent of claims erroneously in 2011, up from 17.3 percent in 2010.

In 2010, an estimated 9.2 million people aged 19 to 64 were contacted by a collection agency because of a billing mistake, according to research by the Commonwealth Fund, a nonprofit research group, while 30 million were contacted by a collection agency because of an unpaid medical bill.

“There is enormous room for errors, whether they are intentional or unintentional,” said Pat Palmer, founder of Medical Billing Advocates of America.

Rodney Anderson, a mortgage banker in Plano, Tex., said he started to notice in 2008 that more of his customers were being hurt by these medical delinquencies. So he kept notes on 5,100 loan applicants over 10 months. He found that 2,200 had at least one medical debt that lowered their credit score, and many of them were unaware of the damage.

“It’s the same thing over and over,” said Mr. Anderson, executive director of Supreme Lending. “You just don’t let $100 go to collections to ruin your credit.”

That prompted him to take the issue to Congress. He said he had spent $1.5 million of his own money on consultants and on lobbying to change the rules. And his efforts, along with those of consumer groups and others, have gotten lawmakers’ attention.

A version of the Medical Debt Responsibility Act, which would erase medical debts from credit reports within 45 days of being settled or paid, was approved by the House with bipartisan support in 2010. The bill was reintroduced in the Senate by Jeff Merkley, Democrat of Oregon, in March.

Interestingly, support for the bill comes from a varied group, including nearly 20 organizations — from consumer groups and the Mortgage Bankers Association to the American Medical Association. “The current system punishes consumers regardless of the underlying facts,” the supporters said in an April 16 letter to lawmakers.

Gerri Detweiler, a credit expert with Credit.com who supports the bill, said, “Consumers have more rights when it comes to disputing a $10 credit card charge than they do a $1,000 medical bill.” She was referring to the Fair Credit Billing Act, which gives consumers the right to dispute a credit card charge while withholding payment and protects the consumer’s credit report during the card issuer’s 30-day investigation period.

When a bill is sent to collections, Ms. Detweiler said, there is nothing specifically in the law to stop it from being immediately reported. Ultimately, it is up to the medical provider to sign off when bills go to collections and when the collection agencies should report to the credit bureaus, according to ACA International, a collections trade group.

Still, critics of the bill say that reporting the collection information is important because it can predict consumers’ future payment behavior. The Consumer Data Industry Association, which represents the big credit bureaus, said that it had “deep concerns about deleting any type of accurate, predictive data” before the end of the seven-year period.

“Broadly speaking, a precedent of deleting adverse information once a delinquent debt is paid would seriously impinge on the quality of data,” a spokesman said.

John Ulzheimer, president of consumer education at SmartCredit.com, also has concerns about deleting data because it does not distinguish between late payments that resulted from errors and those that were truly late.

“If paid or settled delinquencies were simply removed from credit reports as if they never happened, it would severely undermine the integrity of a credit report and the resultant credit score,” he said. “That is why it is called a history.”

Consumer advocates said they believed there should be some sort of mechanism to differentiate between true delinquencies and billing errors.