Proposed Rule Would Wipe Medical Debt From Credit Scores

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Dive Brief:

• The Consumer Financial Protection Bureau proposed regulations Tuesday that would wipe medical debt from Americans’ credit scores — a move that could provide relief for tens of millions shouldering medical bills they can’t afford.
• The Biden administration has zeroed in on medical debt in the last year. Approximately 100 million Americans struggle with medical debt and a disproportionate number are Black, Latino or live in rural areas.
• The proposed regulations are predicted to raise the credit scores of those carrying medical debt by an average of 20 points. They could also lead to the approval of approximately 22,000 additional mortgages every year, according to a White House press release.

Dive Insight:

The rulemaking process kicked off in September, after research found that medical debt was holding Americans back from economic opportunity.

A single medical emergency can leave a patient with tens to hundreds of thousands of dollars in medical debt, Vice President Kamala Harris told reporters during a Tuesday press conference.

“Medical debt makes it more difficult for millions of Americans to be approved for a car loan, a home loan or a small-business loan, all of which, in turn, makes it more difficult to just get by, much less get ahead,” Harris said Tuesday. “And that is simply not fair.”

Patients’ credit scores can suffer when they’re caught in limbo between providers and insurers. This happens despite medical billing having “little to no predictive value when it comes to repaying other loans,” said CFPB Director Rohit Chopra in a statement Tuesday.

Major credit bureaus have already begun removing medical debt from credit reports. In 2022, Equifax, TransUnion and Experian removed medical debt under $500 from consumers’ credit reports.

Harris also called for states to increase oversight into their nonprofit health systems’ charity care programs, noting some low-income patients were incurring medical debt when they should have qualified for financial assistance. 

The vice president advocated for increased financial assistance for patients and policies cracking down on coercive debt collection practices. Such policies could include requiring financial assistance screening before debt is sold to third parties, pausing collections on debt until patients’ insurance coverage appeals are settled and capping interest rates charged on medical debt.

Harris also called for states to purchase patients’ outstanding medical debt. 

The Pacific Northwest has thus far led the way on charity care legislation, with Oregon and Washington adopting some of the toughest charity care laws nationwide. In Washington, for example, approximately half of residents are eligible for free or reduced care. The state’s attorney general has been bullish on enforcement, suing PeaceHealth, Providence and debt collectors for aggressive collection practices.

The Internal Revenue Service also recently announced plans to increase audits of tax-exempt hospitals to ensure they were providing appropriate levels of community benefits, following reports that tax breaks can exceed charity care spending.