Health Care

Confusion is a big reason that 42.9 million Americans have unpaid medical bills

A new report by the Consumer Financial Protection Bureau suggests that 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.
A new report by the Consumer Financial Protection Bureau suggests that 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. Akron Beacon Journal

Baffled by your latest medical bill?

According to a new report by the Consumer Financial Protection Bureau, millions of consumers are. And confusion is a big reason that 42.9 million people, nearly 20 percent of U.S. consumers with credit records, have unpaid medical debts.

The findings suggest that many Americans are being trapped by debt because they simply are confused by the notices they get from hospitals and insurance companies about their share of the cost of treatment, and who should be paid.

“People are often confused about what insurance will pay and what they owe,” said Steve Luptak, owner of Simplified Health Plans, an independent consulting firm in Kansas City.

“I also find items that are miscoded or billed twice and spend a lot of time calling and asking for further documentation. One of my clients was billed five times for the same thing. The creditors were after her, and she didn’t know why. … There’s a lot of billing incompetence and general confusion.”

One result is that millions of Americans may 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.

Jana Castanon, now with the investment firm Two West Advisors, previously worked in consumer credit counseling and met with people who were grappling with big medical bills.

“The consumer sometimes didn’t know until the debt collector called that there was a problem,” she said. “The problem often was that the providers were billing the insurer, the insurer wasn’t paying the bill in full, and the consumer didn’t know the discrepancy.”

Richard Cordray, director of the Consumer Financial Protection Bureau, said in a speech Thursday in Oklahoma City, “When people fall ill and end up at the hospital with unexpected bills, far too often they have entered into a financial maze.”

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. More than half of all debt on credit reports stems from medical expenses.

The report by the federal regulator indicates that about half of consumers who carry only medical debt have no other signs of being under financial distress. But complaints to the consumer bureau indicate that people are routinely baffled by medical bills. Besides causing uncertainty about the amounts owed, the confusion tends to generate disputes from consumers about the unpaid debts.

That prompted the bureau to also announce Thursday that it will require major consumer reporting agencies to provide regular reports on how they investigate and respond to disputed charges.

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 consumer bureau, 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.

The updated model was announced after a separate consumer bureau report in May on the effect medical debt had on credit scores.

Hospitals and insurers say they take steps to help consumers know what they owe, and work out payment plans if they are strapped. They also noted that there’s routinely at least 90 days to sort things out before any action is taken.

Before patients at the University of Kansas Hospital are discharged, hospital representatives try to meet with them to explain how they will be billed, hospital spokesman Dennis McCulloch said.

There’s also an office at the hospital where patients can receive explanations of their bills.

“We know these are difficult bills,” McCulloch said. “We have people trained to walk people through them. We’ll meet with people and work with them.”

In the future, a reorganization now underway at the hospital is expected to bring an end to separate bills from the hospital and its doctors, McCulloch said.

“It may take another year, but eventually, we will go to one bill, not a separate bill for this and a separate bill for that,” he said.

Jason Spacek, a vice president at Blue Cross and Blue Shield of Kansas City, said the medical debt issue underscores the importance of having health insurance in the first place.

“Once you have that benefit, you get an explanation of benefits, details about the service you got, what your insurance plan paid and what your member responsibility is to pay,” Spacek said. “Then you compare that information to the bill you’re getting from your health care providers.”

Spacek acknowledged that process requires time and careful reading of the documents, but he said most insurers have customer service departments to help members understand their bills.

The latest consumer bureau analysis overlaps with a separate study released in July by the Urban Institute, a Washington think tank.

The Urban Institute study found that the share of Americans with debt in collections has remained relatively constant, despite the country as a whole whittling the size of its credit card and other debts since the Great Recession ended in the middle of 2009. That points to a sizeable share of Americans who have no choice but to take on debts they have little chance of repaying — besides struggling to understand their medical bills.

The Urban Institute found that 35.1 percent of people with credit records had been reported to collections for debt that averaged $5,178, based on September 2013 records.

The Star’s Diane Stafford and Alan Bavley contributed to this report.