Americans would no longer have to worry about medical debt dragging down their credit scores under federal rules proposed Tuesday by the Consumer Financial Protection Bureau.
If enacted, these rules would significantly expand protections for tens of millions of Americans who cannot afford health care.
The regulations would also fulfill the Biden administration’s pledge to address the scourge of health care debt, a problem unique to the United States that affects an estimated 100 million people and forces many to make sacrifices such as restrictions on food, clothing and other necessities.
“No one should be denied access to economic opportunity simply because they experience a medical emergency,” Vice President Kamala Harris said Tuesday.
The administration further called on states to tighten restrictions on hospital debt collections and let hospitals provide more charity care to low-income patients, a move that could prevent more Americans from falling into medical debt.
Harris urged state and local governments to continue buying up medical debt and paying it off, a strategy that is growing in popularity across the country.
Credit reporting, a threat traditionally used by healthcare providers and debt collectors to induce patients to pay their bills, is the most common collection tactic used by hospitals, according to a KFF Health News analysis.
While a single unpaid bill on your credit report may not have a big impact on some people, for those with significant health care debt, the impact can be devastating.
For example, there is growing evidence that a lowered credit score due to medical debt can threaten people’s access to housing and exacerbate homelessness. People with low credit scores may also have difficulty getting loans or be forced to borrow at higher interest rates.
“We’ve heard about people who can’t find jobs because their medical debt has affected their credit scores, and their credit is very low,” said Mona Shah, senior director at Community Catalyst, a nonprofit working to expand medical debt protections.
Shah said the proposed regulations would have a significant impact on patients’ financial security and health. “This is really a big deal,” she said.
Administration officials said they plan to review public comments on their proposals throughout the remainder of the year and hope to issue final rules early next year.
CFPB researchers found that, unlike other types of debt, medical debt does not accurately predict a consumer’s creditworthiness, calling into question its role in credit reports.
The three major credit bureaus, Equifax, Experian and TransUnion, said they would stop including some medical debt on credit reports starting last year. Excluded debts include paid off bills and bills under $500.
Government data shows these measures significantly reduced the number of people with medical debt on their credit reports. But the agencies’ voluntary actions excluded many patients with higher medical bills from their credit reports.
A recent CFPB report found that 15 million people still have such bills on their credit reports despite voluntary changes. Many of them live in low-income communities in the South, the report said.
The proposed rules would not only prohibit future medical bills from appearing on credit reports; government officials say they would also forgive current medical debt.
Officials said the prohibited debt includes not only medical bills but also dental bills, which are the leading source of Americans’ health care debt.
Even though these debts don’t show up on credit scores, patients still owe them. That means hospitals, doctors and other providers can still use other collection strategies to try to get patients to pay, including using the courts.
Patients who use credit cards to pay for medical expenses, including medical credit cards like CareCredit, will also continue to see these debts in their credit scores because they are not covered by the proposed regulations.
Hospital leaders and debt collection industry representatives warn that limiting credit reporting could have unintended consequences, such as prompting more hospitals and doctors to demand upfront payment before providing care.
But consumer and patient advocates continue to call for more action. The National Consumer Law Center, Community Catalyst and about 50 other groups sent a letter to the CFPB and IRS last year urging stronger federal action to rein in hospital debt collection.
State leaders have also taken steps to expand consumer protections. In recent months, a growing number of states, led by Colorado and New York, have enacted legislation that would prohibit medical debt from being included on residents’ credit reports or factored into their credit scores. Other states, including California, are considering similar measures.
Many groups are also urging the federal government to ban tax-exempt hospitals from selling patient debt to debt-buying companies or denying care to people with overdue bills, a practice that remains widespread in the U.S., KFF Health News found.
About this project
“Diagnosis: Debt,” a reporting collaboration between KFF Health News and NPR, explores the scale, impact and causes of medical debt in the United States.
The series draws on KFF’s original polling, court records, federal data on hospital finances, contracts obtained through public records requests, international health systems data and a year-long review of the financial aid and collection policies of more than 500 hospitals across the country. investigation.
The Urban Institute conducted additional research, analyzing credit bureau and other demographic data on poverty, race and health status for KFF Health News to explore where U.S. medical debt is concentrated and what factors are associated with high debt levels.
JPMorgan Chase Institute analyzed the records of a sample of Chase credit card holders to understand the impact of major medical expenses on customer balances. Denver nonprofit CED Project partnered with KFF Health News to conduct a survey of its clients to explore the connection between medical debt and housing instability.
KFF health journalists collaborated with KFF opinion researchers to design and analyze the KFF Healthcare Debt Survey. The survey was conducted online and by phone in English and Spanish between February 25 and March 20, 2022, among a nationally representative sample of 2,375 U.S. adults, including 1,292 with current health care debt of adults and 382 adults who had health care debt in 2022. For the full sample, the margin of sampling error is plus or minus 3 percentage points; for the current debt sample, the margin of sampling error is 3 percentage points. The margin of sampling error is likely to be higher for results based on subgroups.
KFF Health News and NPR reporters also conducted hundreds of interviews with patients across the country; spoke with doctors, health industry leaders, consumer advocates, debt attorneys and researchers; and reviewed numerous reports on medical debt research and investigation.
