The prevalence of medical debt has provoked scrutiny from legislators and regulators, with significant repercussions for the collections industry: <\/p>\n\n\n\n
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- The No Surprises Act<\/a> created additional protections for consumers and added additional grounds for challenging medical debts and any related collections efforts.\u00a0<\/li>\n\n\n\n
- In 2023, a new rule from the CFPB<\/a> removed all paid medical debt, medical debt under $500, or collections less than one year old from the credit reporting system. This removes a major incentive for debtors to enter into negotiations with creditors.\u00a0<\/li>\n\n\n\n
- While medical debt was not explicitly targeted in Regulation F\u2019s new guidance and restrictions on communications with debtors<\/a>, this market segment is no less affected than any other.\u00a0<\/li>\n<\/ul>\n\n\n\n
Aside from these existing challenges, in June of 2024, the Biden administration announced a proposed rule change by the CFPB which would eliminate all <\/em>medical debt from the credit reporting system. <\/p>\n\n\n\n
While the difficulty of collecting medical debt has increased significantly, due in part to these changes and in part to headwinds facing the industry as a whole, it remains a crucial source of ongoing revenue. Medical debt represents a significant percentage of the total debt market, and the Congressional Research Service estimates that it accounts for over 30 percent<\/a> of all collections industry revenues.\u00a0<\/p>\n\n\n\n
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<\/figure>\n\n\n\nRethinking the Path Forward<\/h3>\n\n\n\n
These changes have collectively impacted collections strategies across the industry, necessitating a broad review and revision of existing practices. The threat of consequences for a debtor\u2019s credit rating, or the corresponding promise of escape from those consequences, has now been effectively neutralized as a consumer motivation; and sharp limits have been placed on the use of well-established tools such as telephone communications and written letters. <\/p>\n\n\n\n
However, Regulation F also opened the door to the use of other digital means of communication, establishing long-awaiting guidance on the use of text messages and social media platforms (among others) as options for reaching out to consumers. Social media<\/a> also provides a potential forum for both first and third-party creditors to build engagement with consumers.\u00a0<\/p>\n\n\n\n
Thought leaders and innovators within the industry have turned to the marketing world for insights into how these novel avenues of communication can be leveraged to counter the increased difficulty facing those engaged in medical debt collection. It\u2019s a topic we\u2019ve addressed previously on this blog, suggesting seven modern strategies for medical debt collection<\/a> that take full advantage of the new tools available.\u00a0<\/p>\n\n\n\n
2. Transitioning to Digital-First Collections Strategies<\/h2>\n\n\n\n
Turning to the marketing world for insights that can inform collections strategy is not confined to medical debt collection, but is broadly applicable to the industry as a whole. The marketing industry has historically been more closely attuned than the collections industry to the preferences of consumers, as buyers can choose their own vendors while debtors exercise little to no control over the collections process. <\/p>\n\n\n\n
Despite this fundamental misalignment between marketing and collections, marketers\u2019 insights and innovations shouldn\u2019t be minimized or ignored. They are by necessity expert observers and shapers of consumer behavior, and it is the latter that impacts the collections industry. Consumers have been trained to expect the companies they interact with to have a full-scale digital presence, making it possible for them to engage with the company however, and whenever, they choose. <\/p>\n\n\n\n
Creating a Digital-First Collection Strategy<\/h3>\n\n\n\n
Consumers who believe all companies have large-scale, flexible engagement channels are ill-disposed to deal with companies requiring them to establish contact through a given medium and in a given timeframe. Many are especially reluctant to engage with human agents, preferring self-service options or chatbots, and consider the necessity of speaking with a human agent to be stressful. <\/p>\n\n\n\n
Marketers devote a significant degree of attention to eliminating any aspect of their sales cycle that adds time, inconvenience, or unwelcome interactions. Collectively these disincentives are referred to as \u201cfriction,\u201d because like physical friction they impede movement toward a desired goal \u2014 sales or click-through in the case of marketers, or debtor engagement and recoveries in the case of collections. <\/p>\n\n\n\n
Eliminating friction from the collections process can take several forms. These might include: <\/p>\n\n\n\n
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- Increased use of chatbots and self-service options, delivered via websites, ATMs, and mobile apps.<\/li>\n\n\n\n
- Self-service options that include the opportunity to make payments or set up payment arrangements without speaking to a human.<\/li>\n\n\n\n
- Offering a range of payment options, including electronic transfers, digital wallets, and payment services such as Paypal or Venmo. <\/li>\n<\/ul>\n\n\n\n
We\u2019ve delved into the construction of an omnichannel, digital-first collections strategy in more depth in another blog post, which you can find here<\/a>. It requires a significant effort, but the return on that investment has been substantial for companies that have already made that transition to customer-centric management<\/a>.\u00a0<\/p>\n\n\n\n
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<\/figure>\n\n\n\n3. Adapting to Consumers\u2019 Financial Circumstances <\/h2>\n\n\n\n
Disruptions affected by the COVID pandemic had surprisingly minimal effect on consumer default rates initially. This was due in part to employers\u2019 impressively swift transition to work-from-home and delivery-based models where applicable, and to government programs that were rushed into place to provide a safety net for consumers. <\/p>\n\n\n\n
Those programs have since been sunset, and rising interest rates and inflation have hit many consumers in the pocketbook. Debtors understandably prioritize keeping a roof over their heads and food on the table, and often have legitimately little left over after doing so. <\/p>\n\n\n\n
In this context, the traditionally adversarial approach to collections strategy is likely to be ineffective, or even counterproductive. Accordingly, many in the industry now advocate for a shift to a more collaborative, empathy-driven approach. As with the creation of a digital-first experience for debtors, this is driven by the experience and example of the marketing and retail industries. <\/p>\n\n\n\n
Adopting a Customer-Centric Paradigm<\/h3>\n\n\n\n
Thinking of the debtor as a \u201ccustomer\u201d represents a significant shift within the collections industry, especially in third-party collections. First-party creditors have an innate incentive to retain debtors as long-term customers, as long as their immediate delinquency is manageable<\/a>. In this instance, an occasional lapse is a regrettable but not uncommon stage in an overall customer relationship that may last for years or even decades.\u00a0<\/p>\n\n\n\n
In third-party collections<\/a>, there is no prior customer relationship or loyalty to draw upon and generate goodwill. Nevertheless, there are strongly pragmatic reasons for a shift in collections strategy to a customer-oriented paradigm. Collections professionals who position themselves as a service provider, helping consumers restore their credit and reduce their financial stress, have reported notable improvements in their recovery rates.\u00a0<\/p>\n\n\n\n
While third-party collections firms lack first-party creditors\u2019 direct interest in the long-term customer relationship, a change of paradigm can still be in their interest. Any change to collections strategy that improves outcomes is inherently valuable. Additionally, the first-party creditors who are their own clients are sensitive to the potential for reputational damage and lost client relationships<\/a> through adversarial collections techniques. Third-party contractors with a demonstrated expertise in collaborative, empathy-driven collections can emphasize this as a differentiator and selling point in their own marketing efforts.\u00a0<\/p>\n\n\n\n
The Common Thread Underpinning These Challenges<\/h2>\n\n\n\n
While each of these three challenges is unique, and strategies for countering them vary, there is a visible point of commonality \u2014 responding to all three requires upgraded debtor intelligence. Credit reports, and the information available from legacy data providers, aren\u2019t adequate for the task. Even first-party creditors, who can draw on their own privately held customer history, are limited in their ability to create detailed, 360-degree profiles of their debtors as individuals. <\/p>\n\n\n\n
That ability, and the avenues it opens for improved collections strategies, instead requires innovative new tools like Spokeo for Business<\/a>. With Spokeo for Business, collections professionals can:\u00a0<\/p>\n\n\n\n
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- Identify previously unknown channels of communication, including alternative and updated emails or phone numbers as well as social media platforms that can be utilized for engagement purposes or via direct messaging. <\/li>\n\n\n\n
- Integrate the deeper, more current data from these searches with existing data platforms and analytics tools, using Spokeo\u2019s powerful application programming interface (API). <\/li>\n\n\n\n
- Assess the social platforms used by debtors, which in turn informs decisions about how best to approach and engage with them. <\/li>\n<\/ul>\n\n\n\n
Insights like these can assist in planning and executing new collections strategies, and a more empathetic and customer-centric collections culture. <\/p>\n\n\n\n
To learn more about how Spokeo for Business can help you strategize for the challenges facing the industry in 2025 and beyond, reach out to our team using the contact information on our Collections and Skip Tracing<\/a> page. They\u2019ll be happy to answer your questions, arrange a demonstration of the product, or even set up a no-cost, hands-on trial.\u00a0<\/p>\n\n\n\n
Sources<\/p>\n\n\n\n
Peterson KFF Health Systems Tracker: How Does Health Spending in the US Compare to Other Countries?\u00a0<\/a><\/p>\n\n\n\n
The Commonwealth Fund: How Medical Debt Makes People Sicker – and What We Can Do About It<\/a><\/p>\n\n\n\n
Consumer Financial Protection Bureau: What is a \u201cSurprise, Medical Bill,\u201d and What Should I Know About the No Surprises Act?<\/a><\/p>\n\n\n\n
Consumer Financial Protection Bureau: Have Medical Debt? Anything Already Paid or Under $500 Should no Longer Be on Your Credit Report<\/a><\/p>\n\n\n\n
\u00a0Consumer Financial Protection Bureau: Regulation F Part 1006.6: Communications in Connection With Debt Collection<\/a><\/p>\n\n\n\n
Congressional Research Service: An Overview of Medical Debt Collection, Credit Reporting, and Related Policy Issues<\/a>, July 20, 2022<\/p>\n\n\n\n
California Management Review: What is Customer-Centricity, and Why Does it Matter?<\/a>\u00a0<\/p>\n\n\n\n
- In 2023, a new rule from the CFPB<\/a> removed all paid medical debt, medical debt under $500, or collections less than one year old from the credit reporting system. This removes a major incentive for debtors to enter into negotiations with creditors.\u00a0<\/li>\n\n\n\n