What Happens If You Don't Pay Hospital Bills?

Hospital billing departments send medical bills to insurance companies for payment, but if your insurance company refuses to pay or you lack health insurance altogether, paying the debt becomes your responsibility. Like any debt, if you ignore hospital bills, this can pose a threat both to your credit score and your future financial stability.

Facts

Most hospitals will notify you as soon as your insurance company turns down payment of your medical debt. Some health insurance plans cover only a portion of your debt -- leaving the remainder of the bill your responsibility. Although all hospital policies differ, if you don't submit a payment within the required time frame, the hospital will send the bill to a collection agency. According to New York's Neighborhood Economic Development Project, medical service providers don't grant consumers as much time to pay off debts before sending them to collections as other private creditors.

Significance

Once the hospital sends the debt to a collection agency, it will appear on your credit report. Small medical debts of less than $100 do not adversely affect your FICO score. If you owe a considerable debt, however, the collection account damages your credit rating. Lenders, insurance companies and other businesses that pull your credit report will see the record of the unpaid debt and take it into consideration when considering your application for employment, loans, insurance, credit cards and other services.

Considerations

Not all lenders view medical debt in the same manner. To most lenders, a collection account is evidence of poor debt management skills. If the collection account is a result of a hospital stay, however, a lender's perspective may differ. You have little control over your health care needs, and your inability to pay the high costs of most medical services does not mean that you wouldn't make timely payments on forms of debt you incurred voluntarily.

Time Frame

Most hospitals will accept a reasonable payment plan for significant medical debts. Unfortunately, if the hospital has already turned the account over to a collection agency, paying it off does not resolve the credit damage you suffer by having the debt appear on your credit report -- damage that, according to the Fair Credit Reporting Act, continues for seven years.

In January 2010, Congress proposed the Medical Debt Relief Act. The Act would serve as an amendment to the Fair Credit Reporting Act and require information providers to remove evidence of the medical debt from a consumer's credit records once the debtor successfully paid off the costs of his prior medical care.

Warning

Rather than sending unpaid medical debts to collections, some hospitals will forgive the debts under charity care programs. Because hospitals are businesses, however, forgiving the debt doesn't mean that it disappears. At the end of the year, the hospital can claim the unpaid bills as a tax loss and send you a Form 1099-C for the amount it wrote off. You must then claim the forgiven medical debt as income on your taxes.