Around this time last year, the three credit reporting agencies had to change their rules (due to an agreement with several state’s attorney generals in 2015) surrounding reporting of a consumer’s medical debt in collections. Now, they basically have to give consumers a standard 180 day “grace period” before reporting medical collections on the consumer credit report. Another reporting change requires the bureaus to remove a past due medical bill that is later paid by insurance.

For many Americans, the increase in medical debt is due to higher deductibles and out of pocket costs for healthcare, timely payment by insurance to providers, and the decision by insurers that a provider was “out of network” resulting in a lower reimbursement and the outstanding costs passed on to the consumer. A fun little statistic related to the rules change is that up to 80% of bills submitted by providers to insurers are incorrect the first time. So insurance doesn’t pay them, the bills must be corrected and resubmitted for payment. This results in delays in settling medical bills. Sometimes for months.

The 180-day reporting delay is good for consumers with medical debt because these bills are often passed to collections quickly, within 30-60 days after the payment was due. Faster than many creditors will pass off non-medical debt accounts. This allows time for consumers to deal with insurance, pay their medical bills, and work on billing disputes even if the account is with collectors.

It is important to note that, while it is true that it will no longer have as big an impact on the “FICO” and VantageScore credit scoring models for 180 days, other credit scoring models that lenders use have not adopted this approach. So, you still need to watch your credit report if you are facing medical debts in collections.

Here are a few other things to consider if you or someone you know is facing medical debt:

• You are not alone. Around 43 million Americans had medical debt on their credit reports last year. The average amount of medical debt in collections was $579.00 last year. With 78% of Americans living paycheck to paycheck, this is a large enough number to cause financial hardship.

• While medical debt should NOT be ignored, if you are struggling with debt, it should be given a lower priority than other consumer debt, such as credit cards and personal loans. To do this, the medical debt must remain a “medical-debt,” meaning do not borrow or pay these debts with a credit card.

• Collectors will often try to push you to pay the bill, even suggesting you just put the balance on a card. But if you pay the medical debt with a credit card, you can limit your ability to settle the debt, or seek financial assistance from the hospital or other agency. You can stop collectors from calling by making your request in writing. You just need to send a letter.

• There are statutes that protect consumers who owe medical debt from being turned away from the emergency room for medical care. And, according to the National Consumer Law Center:

“If you request financial assistance from a nonprofit hospital, the hospital cannot deny you care in any part of the hospital because of an old bill until it determines whether you are eligible for financial assistance. You usually have about eight months (240 days) from when you first received the old bill to request such financial assistance.”

• Medical debt is a big reason for bankruptcy, but not why you think. When people are too ill to work, income plummets, savings can be exhausted and often medical debt was transferred to credit cards.

Remember, you now have 180 days to get medical bills handled before they hit your Equifax, Experian, or TransUnion credit report. You can dispute anything erroneously reported and have the records of medical bills that were paid by insurance removed.

NOTE: I am not an insurance agent, I don’t sell any policies, and that is best left to the professionals in the field. This is just mine and my husband Mike’s story. A story about what we wish we knew to protect our family as small business owners. I am sharing primarily because it is a money topic, and many, many people have small businesses that generate at least part of the family’s income each month. I am just going to share our raw story, and our mistake that closed our company, threw us into severe financial difficulty, and took three and a half years to dig out. Also, this post is not about life insurance, the most obvious, or even insurance for our physical business. I want to share the types of insurance that we didn’t know about but can perhaps prevent financial ruin for another family. 

When Mike wanted to start a consulting business in 2011, I was so excited. And it was great. It really was. Mike and I followed the state guide, took all the legal steps, got our licenses and set up our office space in our home. Then we took courses through the Small Business Administration, met with awesome advisors through SCORE. In short, we followed the “rules.” We had a business plan, a (now defunct) website, worked hard, read everything, learned a lot, make a ton of rookie mistakes, embraced them, kept going. After about a year or so, we thought we had it figured out. And for the business, we sorta did.

But today we talk about UNEQ Consulting (pronounced unique), LLC, in the past tense. Because it’s been gone since March of 2014. Because on November 1st 2013, Mike was working at a site in Eufaula, Alabama and fell head first 18 feet off of a ladder. Onto concrete. Yup. In three seconds, our life was changed forever.

Here’s why it’s important. Because what we didn’t do, and really never thought about, was protecting our family as self-employed small business owners. Mike survived the accident. Thank God. Had he passed? This is a different conversation. But Mike survived, with a severe head injury and years of rehabilitation ahead.

So, here’s the short list of what we wish we knew:

• What types of insurance we needed to protect our family- not just the business
• The importance of disability insurance on Mike, or “business continuity” or Key Man insurance.
• That in many states, unemployment insurance is for the employed- just not the self-employed
• And that Social Security has an “exclusionary” period for around five months, where even if you are approved, there is no back pay
• Oh, that we shouldn’t incur debt, because we had debt. For example, credit cards “we paid off every month” until the deductibles started needing to be paid, and I had to choose
• We wish that for all of the business preparation, that we would have been told to go and speak with someone about what we may need for this unlikely situation.

This November 1st 2018 will mark five years since our life changing event. Mike has made an amazing recovery, but it has taken years of digging in and working hard to recover financially. We paid it all in full, including the IRS lien on the house (for back self-employment taxes), and have sworn off debt. We hope that this post reaches just one person who needs to read it. Please share our story with every self-employed person and small business owner you know.