Can Obamacare and Your Credit Scores Be Linked?

In October of 2013, a lead navigator for the government website in Florida made the startling statement that credit scores were used to calculate premiums for health care insurance obtained through the sign up for the Affordable Care Act (ACA), a.k.a. Obamacare. She had to retract the statement.  A representative for the U.S. Department of Health and Human Services has said publicly that credit scores have nothing to do with insurance rates under the Affordable Care Act. “Insurers are not allowed to factor in credit scores when setting premiums and at no point in the process are peoples’ scores accessed.”  Experian, one of the three major credit bureaus, was contracted to verify consumers’ identities as they applied for insurance through the exchanges, but the verification does not equal a credit check. Could Obamacare and your credit still somehow be linked? There is certainly a connection between medical bills and credit.  When medical debts go unpaid, even for short periods of time, those bills can wind up in collections, often without the person’s knowledge.  Many new programs were created specifically for the ACA.  Administration of the private plans has only become more complex for health care providers as a result of all the new programs, increasing the chances that medical bills will make it to a collections firm. It’s often difficult for people who are usually meticulous with bill payments to sift through the maze of insurance legal clauses. When patients have questions about bills, they are dealing both with insurance agents and the providers and often the two are not in communication during a dispute.  There is no way for the healthcare provider to know that the patient is actively working on deciphering the bill and straightening out problems. In the meantime, the healthcare provider insurance billing department has its own policies and if no money is received after a certain amount of time, the bill is sent to collection. There is no government regulation on how medical billing is handled.  There is no dispute procedure, something that would have been nice to see in the Affordable Care Act.   Some hospitals and doctors have hardship programs, but most doctors today work for professional corporations and hospital groups whose policies fit more with corporate billing systems than someone close to the patient and his or her payment problems. Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), has noted that half of all accounts reported by collection agencies now come from medical bills, and the credit record of 1 in 5 Americans is affected.  One single collection is enough to tank your credit score and prevent you from purchasing a home, buying a car, getting a job or getting cheap home or auto insurance.  The CFPB estimated that one collection could drop a consumer with a 785 credit score 115 points. The credit score tide is turning with regard to medical collections. The CFPB released a study in May 2014 concerning medical debt and predicted delinquencies.   The CFPB studied 5 million credit reports during 2 periods, once in September 2011 and the same credit reports in September 2013.  It also compared credit score data of some of its participants during the two time periods. The study considered scores and delinquency rates for people with mostly non-medical collections and compared those with scores and delinquency rates for those with mostly medical collections. The observed differences between these groups provided a way to measure how the two groups behaved differently with their accounts going forward.  The result: people with medical debt paid back their debt as well as consumers with non-medical debt whose credit scores were 10 points higher. In other words, those with medical collections have been unfairly penalized. The CFPB has since asked that credit scoring systems not overemphasize medical collections over non-medical debt. There is evidence that those who create credit scores are listening. FICO, formerly known as Fair Isaac Corp, is planning to update their scoring model to lessen the blow of medical collections on credit scores.  The new model (which includes other changes not related to medical debt), FICO Score 9, will launch later this year. Similar changes to VantageScore, the scoring model co-created by the Big Three credit bureaus (Experian, Equifax and TransUnion) have not yet been publicly announced. In that regard, though, it’s important to note that the FICO scoring model is still used by the overwhelming number of creditors when making lending decisions. John Ulzheimer, credit expert at CreditSesame.com, thinks Obamacare will only affect your credit indirectly.  “If being enrolled in Obamacare indirectly impacts your credit by how it pays doctor’s bills (or if it doesn’t) I guess that’s a possibility, but you could say the same thing for every other health insurance program,” he said in an email. Despite the fact that millions of Americans now have health insurance through Obamacare who were not covered before, the system has become increasingly complex for providers due to the large numbers of new insurance packages.  The likelihood of a bill going into collections has increased.  Though the negative effect of a medical collection on your credit report will be decreased later this year, it will still have a significant downward consequence.  Due to Obamacare, the likelihood of credit scores going down for anyone with health insurance who seeks medical treatment may have increased.