What is medical debt?
Medical debt is the result of unpaid medical bills owed to healthcare providers. Medical debt can be the result of emergency room visits, hospitalizations, surgeries, out-of-network cost, high copays, and lack of health insurance.
When you provide your health insurance to pay for services from a healthcare provider, the remaining balance is what you owe. Health insurance only covers so much of services and medical bills can begin to stack up. If you do not pay the balance owed to these medical providers within a certain timeframe they can be sent to collections, also known as medical debt.
Does medical debt affect your credit score?
As long as you pay your medical bills they will not affect your credit score. Medical bills become medical debt if they are unpaid for a certain period of time. However, if you have unpaid medical bills that are in collections for over 1 year and over $500, then it will get reported to the credit bureaus. Even if you have a good credit score, a collection account on your credit report can negatively impact your score.
The Medical Debt Forgiveness Act of 2023 prohibits all paid medical debt being reported on consumer credit reports. The new grace period allows medical debt to be in collections for up to 1 year before it gets reported to the credit bureaus. Additionally, it excludes balances that are under $500. This act grants more time to resolve medical balances. Health insurance companies can take months to resolve any billing issues or process payments. This also protects your credit score from being negatively impacted immediately.
How long does medical debt stay on the credit report?
Unpaid medical debt that has been in collections for over 12 months, can stay on your credit report for up to 7 years. After seven years the medical debt credit report can be removed from the report with or without a balance. Medical debt can stay on a credit report if the balances are left unpaid. Although, once you pay the medical debt collections account it is taken off your credit report.
Does medical debt ever go away?
Medical debt goes away after it is either paid, negotiated and or settled. Medical debt drops off a person’s credit report after seven years. As of 2023, medical bills that are under a $500 balance are not reported on credit reports. Some states also vary by their ability for collectors to sue for unpaid medical debt balances. In certain situations people can qualify for financial forgiveness from hospitals.
The Medical Debt Forgiveness Act, Explained
Outside of an overall summary of medical debt, the Medical Debt Forgiveness Act of 2023 is essential towards understanding medical debt and debt forgiveness in 2025. Specifically, Medical Debt Forgiveness Act of 2023 limits a credit agency’s ability to report medical debt for 1 year. Unexpected health issues and surprising medical bills can limit a person’s ability to pay balances in full. This act aims to allow individuals time to take care of their health and medical bills while also protecting their credit scores from being impacted. Medical debt is uniquely different from other types of debt because many times it is out of an individual’s control and are involuntary decisions. They are a result of someone’s health condition. Therefore they should not be used as a metric in an individual’s credit evaluation.
Still looking for help with medical debt? PDS can help get rid of your medical debt now. Contact the team at PDS today.
