Biden administration to ban medical debt from Americans’ credit scores

On Thursday, the Biden administration unveiled proposals to create federal regulations that would prevent unpaid medical bills from having an impact on patients’ credit ratings as part of a significant campaign to safeguard Americans from medical debt.

By removing information that can lower consumer scores and make it more difficult for many people to find employment, rent an apartment, or qualify for a car loan, the changes, if implemented, could potentially aid tens of millions of people who have medical debt on their credit reports.

A KFF Health News-NPR investigation revealed that new regulations would also be one of the most major federal steps taken to address medical debt, an issue that affects about 100 million people and drives millions to take on additional work, give up their homes, and restrict food and other necessities.

Vice President Kamala Harris and Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), jointly launched the new initiatives. “No one in this country should have to go into debt to get the quality health care they need,” stated Harris. The organization will be in charge of creating the new regulations.

Millions of Americans’ credit ratings will rise as a result of these actions, Harris predicted, making it easier for them to invest in the future.

It can take time to enact new regulations. The new regulations would be created the next year, administration officials announced on Thursday.

Hospitals and other healthcare providers would face industry pushback if they took such a bold step to limit credit reporting and debt collection.

Moreover, a case before the Supreme Court, whose conservative majority has been eroding federal regulatory powers, may jeopardize the future of the Consumer Financial Protection Bureau, which was established in response to the 2008 financial crisis.

However, patient and consumer advocacy groups, many of which have been campaigning for years for the federal government to tighten protections against medical debt, have praised the Biden administration’s action.

“This is an important milestone in our collective efforts and will provide immediate relief to people who have unfairly had their credit impacted simply because they got sick,” said Emily Stewart, executive director of Community Catalyst, a Boston-based nonprofit that has assisted in leading national efforts to combat medical debt.

According to a KFF Health News analysis, the most frequent collection strategy employed by hospitals is the fear of credit reporting, which is intended to persuade patients to settle their debts.

Chi Chi Wu, a senior attorney at the National Consumer Law Center, stated that “negative credit reporting is one of the biggest pain points for patients with medical debt.” “Consumers frequently discuss the devastating effects that bad credit from medical debts has had on their financial lives when we hear from them about medical debt,” says the company.

For some people, a single negative entry on their credit report may not have a significant impact, but for those who have significant unpaid medical expenses, it can have a catastrophic consequence. Growing data shows, for instance, that having low credit ratings brought on by medical debt can make it difficult for people to get homes and contribute to homelessness in many areas.

In addition, CFPB researchers discovered that, unlike other types of debt, medical debt does not reliably predict a consumer’s creditworthiness, casting doubt on its usefulness as a credit report item.

The three biggest credit bureaus, Equifax, Experian, and TransUnion, said last year that they would stop reporting some medical debt on credit reports. Paid-off invoices and debts under $500 were among the debts that were not mentioned.

However, millions of patients with higher medical expenses listed on their credit reports were excluded from the voluntary activities of the agencies. Many supporters of patients’ rights and consumers made the same call.

In a letter to the CFPB and IRS in March, the National Consumer Law Center, Community Catalyst, and almost 50 other organizations urged tougher federal action to stop hospital debt collection.

State officials have also taken action to strengthen consumer protections. In June, Colorado passed a ground-breaking law that forbids people’ medical debt from appearing on their credit records or being taken into account when calculating their credit ratings.

According to KFF Health News, numerous organizations have lobbied the federal government to prohibit tax-exempt hospitals from engaging in these practices, which are nonetheless common in the U.S.

Hospital administrators and representatives of the debt collection sector have cautioned that such limitations on medical providers’ capacity to collect their debts may have unforeseen repercussions, such as pushing more hospitals and doctors to demand upfront payment before providing care.

Others have cautioned that laxer credit standards could make it simpler for consumers who can’t handle greater debt to obtain loans they might not be able to repay.

“It is unfortunate that the CFPB and the White House are not considering the host of consequences that will result if medical providers are singled out in their billing, compared to other professions or industries,” said Scott Purcell, CEO of ACA International, the top trade association for the collection industry.

Regarding this project

KFF Health News and NPR’s joint investigative project “Diagnosis: Debt” examines the scope, effects, and root causes of medical debt in America.

A year-long investigation into the financial assistance and collection practices of more than 500 hospitals across the nation, original polling by KFF, court records, federal data on hospital finances, contracts obtained through public records requests, information on international health systems, and contracts are some of the sources used in the series.

The Urban Institute did additional research for KFF Health News, analyzing credit bureau data as well as demographic information on poverty, race, and health condition in order to determine where medical debt is concentrated in the United States and what elements are linked to high debt levels.

The JPMorgan Chase Institute examined the data from a sample of Chase credit card holders to determine how big medical costs might affect the balances of customers. Additionally, to investigate potential connections between medical debt and housing instability, the Denver-based charity CED Project collaborated with KFF Health News on a poll of its customers.

KFF Health News journalists and KFF public opinion researchers collaborated to create and evaluate the “KFF Health Care Debt Survey.” A nationally representative sample of 2,375 U.S. adults, comprising 1,292 persons with current health care debt and 382 adults who had health care debt in the previous five years, participated in the survey from February 25 through March 20, 2022, both online and over the phone, in English and Spanish. For the entire sample including those who have current debt, the range of sampling error is plus or minus 3 percentage points. Results based on subgroups may have a higher margin of sampling error.

Additionally, hundreds of patient interviews were done around the nation by reporters from KFF Health News and NPR. They also spoke with doctors, executives in the healthcare sector, consumer activists, debt lawyers, and researchers, and they evaluated a large number of studies and surveys on medical debt.

One of KFF’s main operating programs, KFF Health News is a nationwide newsroom that delivers in-depth journalism about health issues. It is an independent source of health policy research, polling, and journalism. Find out more about KFF.

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