I wanted to answer this for you this morning, but ironically, I was worried it would make me late for work, where I answer this kind of thing all day. I work for a state Attorney General's Office in the Consumer Protection Division.
There is bad news and good news to your situation.
Might as well start with the bad: yeah they can report this to your credit. However, if you can't pay it, then I wouldn't let that be the be all and end all of your worries. The hospital could very well have already put it on your credit anyway. These days,
nobody is getting loans on big items, just ask all the car dealers going out of business. Hopefully by the time the global financial situation is better you will be in an improved situation to pay it off, and while your credit won't be perfect, it won't be that horrible compared to all of the people who took adjustable rate mortgages they couldn't hope to pay and had their homes foreclosed.
So the good news: the collection agency is in fact answerable to the Fair Debt Collection Act and the guy is already treading the line by "nicely" telling you they will put it on your credit. It is in fact illegal for them to threaten to do so (or make any sort of threats at all), even though they may take the actual action. Furthermore, you can ask them to only communicate with you in writing, and they will have to do so, so that will stop the likely frequent phone calls floatingslowly mentioned.
Mind, many collection agencies play dirty and break the FDCA all of the time. If you ask them to stop calling, and they don't, send a written request - preferably by certified mail that they have to sign for (and SAVE a copy!)
The Fair Debt Collection Act is administered by the Federal Trade Commission. Go to their website
http://www.ftc.gov and read up on it and let the collection agents know in your letter to them that you know it. If they aren't following it, you can (and should!) file a complaint with the FTC online from the same website and you might be able to do the same with your state's Attorney General's Office or other consumer protection agency (in some states it's a separate agency).
Since you don't currently have a job, you don't have to worry about the collection agency garnishing your wages, but that could be a serious concern if you get a decent paying job and still owe it and haven't worked to set up some sort of payment plan. However, it costs them money to file suit in court to win a garnishment, so they really only do that as a last result where they aren't likely to get any payments and there is money to seize. Just like with putting things on your credit, they can't
threaten to garnish your wages, even though they may be able to actually do so.
I hope this stuff is useful. I've had a few bills that got sent to collections in my life, though nothing very high. My wife has horrible credit, which I married along with her. Nonetheless, we were able to buy a car and a house with decent non-adjustable rates. We wouldn't likely be able to right now, but again, nobody can right now. The guy calling you from the collection agency more than likely can't either.