Biden Administration moves to strike medical debt off consumer credit reports

President Joe Biden has announced plans to develop federal rules to keep unpaid medical bills off patients' credit reports. The Consumer Financial Protection Bureau (CFPB) will be in charge of developing the new rules.

The proposed regulations would prohibit consumer reporting companies from including medical debts and collecting information on consumer reports that creditors use to make underwriting decisions. Creditors would also be barred from using medical collections information when evaluating borrowers' credit applications. And debt collectors would no longer be able to use the credit reporting system as leverage to pressure consumers into paying questionable debts.

The rules stand to impact tens of millions of Americans with outstanding medical debt, according to the CFPB. In 2021, 43 million people had allegedly unpaid medical bills on their credit reports, making getting a loan, renting an apartment, or getting hired for a job harder. It can even drive up the cost of insurance.  

"No one in our nation should have to go into debt just to get the quality healthcare that they need," Vice President Kamala Harris said in a statement. "These measures will improve the credit scores of millions of Americans so that they will better be able to invest in their future."

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Big 3 credit bureaus already removing some medical debt

The changes to how medical debt is reported, announced last July, means that any medical debt in collection no longer immediately impacts consumers' credit. Last March, the three major credit bureaus – Experian, Equifax and TransUnion – began scrubbing medical debt under $500 from credit reports. VantageScore, an entity owned by the conglomerates, has stopped using medical debt in its scores entirely. Newer FICO score models also give less weight to medical debt reporting.

"Large credit scoring companies are moving to models that completely or partially exclude medical bills, though many creditors still rely on older models that haven't made that shift," CFPB Director Rohit Chopra said in a statement. 

However, after a year, medical debt in collection over $500 will continue to show up on credit reports, and large, unpaid medical bills in collections can still damage your credit score.

Roughly 15.4% of Americans who have a credit bureau report had medical debt in collections as of February 2022, according to a recent report from HelpAdvisor.com. In certain areas of the U.S., the rate of people with medical debt in collections is upwards of 40%.

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Inflation driving up the cost of medical care

Medical care services have also felt the sting of inflation and have impacted Americans' healthcare purchasing decisions or their ability to pay medical bills, according to a recent AccessOne survey.

The medical care index rose 0.2% in August after falling 0.2% the previous month, according to the August Consumer Price Index (CPI). The index for hospital services increased 0.7% over the month, and the index for physicians' services rose 0.1%. Americans also paid 0.4% more for prescription drugs in August. This rise in healthcare costs and other areas of spending is why 71% of respondents said they are struggling with healthcare bills or delaying medical decisions. 

Overall, 43% of Americans said they couldn't comfortably cover medical costs exceeding $249, while 54% would delay payment on an unaffordable bill, according to the survey. Moreover, the rising cost of healthcare pushed 28% of Americans to delay treatment in 2022, according to a separate Gallup survey.

"Research shows that medical bills have little predictive value in credit decisions, yet tens of millions of American households are dealing with medical debt on their credit reports," Chopra said. "When someone gets sick, they should be able to focus on getting better, rather than fighting debt collectors trying to extort them into paying bills they may not even owe."

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