Medical debts shouldn't count

I saw this interesting article on MSN Money, of all places, that rings true:

It's a good thing Greg Hilfman of Los Angeles has health insurance because an unpaid medical bill has sent his blood pressure soaring.

Hilfman's wife was in a hospital two years ago for pancreatitis, and Hilfman said she was treated by a "cadre" of doctors and specialists. All but one submitted bills to their insurer, Blue Cross of California, in time to get paid.

Six weeks ago, however, a woman from a neurologist's office contacted Hilfman, explaining that the office "didn't have the right address for Blue Cross" and thus hadn't submitted the bill within the one-year period required for reimbursement. She demanded that Hilfman cough up $540.

Hilfman was furious. He'd never heard of the doctor and insisted he'd seen no bill or any indication there was a problem with payment. Now he's worried he'll have to pay a bill that should have been covered by insurance or risk damage to the couple's credit reports.

"How is this fair?" he asked. "They can say anything they want (to the credit bureaus), and I have no recourse."

Hilfman is right to be concerned. The Your Money message board is littered with complaints from folks whose otherwise pristine credit was sabotaged by a medical collection. Sometimes their records were besmirched over absurdly small amounts that nonetheless had big impacts on credit scores.

Poster "sunny_light," for example, recently discovered a medical-collection account for just $7.

"I pulled my credit report last week and found out," sunny_light wrote. "I promptly paid the collections people. But now my credit score is down by like 80 points."

A similar thing happened to me two years ago. I was out insurance and had to visit an ER for a bronchial infection. Even though I promptly paid my bill, it still got reported and my credit was ruined for a good while.

Even when medical debts are legitimately owed and left unpaid, though, some experts question whether they belong on credit reports.

There's no question that medical bills pose huge risks for the finances of many families. Medical problems were cited as a factor in nearly half of the bankruptcies studied by Harvard University professor Elizabeth Warren.

Still, many mortgage lenders who specialize in serving low-income communities have discovered that discarding medical debts often gives them a better picture of a borrower's true creditworthiness, said Michael Stegman, the director of policy for the MacArthur Foundation's program on human and community development.

"If all their other credit accounts are in good shape, or they haven't established credit but they've had no delinquencies on their rent," Stegman said, "the fact you have a bad medical debt or an outstanding judgment over a medical bill is not a good predictor of default."

So true, I take extremely good care of my finances. I didn't even have a credit card at the time of my medical bill and the only reason I have one now is because you need to establish credit to get a home, a car, etc. Medicals debts shouldn't be held against you the same way not paying for all the clothes you bought with your credit card does. But, of course, medical debts are big business for collection agencies.

The article has a few helpful tips near the end about what you can do if you're in this situation, but we need state or federal legislation to help protect people from this crap.