People struggling with unpaid medical bills may soon have the debt erased from their credit reports.
The Consumer Financial Protection Bureau said this month that it was developing new rules that would prevent past-due medical debt from appearing on credit reports, where it can hurt people's ability to qualify for loans, as well as for housing and jobs, because landlords and employers sometimes check applicants' credit history. Even getting approval for a cellphone plan may depend on having good credit.
Still, it could be many months before the consumer agency finalizes the rules. The plan could face opposition from industry groups. "We have concerns that some of the proposals may push the limits of the bureau's authority under federal law," Dan Smith, president and CEO of the Consumer Data Industry Association, which represents the credit bureaus, said in an emailed statement.
Some states, meanwhile, are already acting to scrub medical debts from credit reports. Colorado passed a law that took effect in August, and New York passed a law in June that awaits the governor's signature. (A spokesperson for Gov. Kathy Hochul said Wednesday that she "will review the legislation.")
Julia Char Gilbert, a policy advocate with the Colorado Center on Law and Policy, a nonprofit group that championed the Colorado law and backs the federal consumer bureau's changes, said, "It's hard to overstate the impact these changes will have on Americans' lives. There is a growing understanding that medical debt is reaching emergency levels."
About 6% of adults, or about 16 million people, owe more than $1,000 in medical debt, and 1%, or 3 million people, owe more than $10,000, according to a 2022 analysis by two nonprofit health research groups, the Peterson Center on Healthcare and KFF. People with disabilities and Black Americans are more likely to have significant medical debt, the analysis found.
Having health insurance doesn't necessarily protect patients from medical debt, the groups found in a separate analysis, because insured people often cannot afford their out-of-pocket costs, like copays and deductibles -- the amount you pay for health care services before your insurance coverage starts to pay. The average annual deductible in 2021 for single workers with job-based insurance was almost $2,400 at small firms and about $1,400 at larger companies.
Doctors and hospitals typically don't report medical debts directly to credit bureaus. Rather, after a patient fails to pay, the bill may go to a collection agency, which may report the delinquency to the credit bureaus.
In 2021, more than half of third-party debt collections on Americans' credit reports were for medical debt, Rohit Chopra, the consumer bureau's director, said in prepared remarks.
Many people with medical debt are those with chronic illnesses who need continuing care or those with a one-time injury that required treatment in the emergency room, said Jennifer Holloway, a fellow at Tzedek DC, a nonprofit group in Washington that offers free legal help for low-income people in debt. "They fell and broke their ankle, they have a high deductible, and now they're thousands of dollars in debt."
The consumer bureau's research, however, has shown that medical bills are "less predictive" of future repayment risk than credit card, mortgage or other debt. That's partly because medical debt is often unplanned and also because medical billing is complex. Mistakes on bills are common, as are disagreements between providers and insurance companies about coverage. In some cases, the consumer bureau said, debt collectors may use the prospect of damaged credit to strong-arm patients into paying what may be "spurious or false" medical bills that they don't really owe.
"Folks are being penalized for something they didn't do," said Kaye Pestaina, a co-director of KFF's program on patient and consumer protections. If a medical debt is placed on a credit report by mistake, she said, "it doesn't reflect your ability to pay back debt."
The consumer bureau's proposals wouldn't eliminate medical debt, but removing it from credit reports would help protect patients from the negative effects of having unpaid medical collections on their credit history, Pestaina said.
Last year, the three major credit reporting bureaus, Equifax, Experian and TransUnion, agreed to exclude from credit reports any medical collection debts that had been paid as well as those less than a year old. And as of April 11 of this year, the bureaus no longer include medical collections for amounts under $500 on credit reports.
That action meant that about half of all people with medical debts on their credit reports will have it removed from their credit history, the consumer bureau said. But it still left millions with larger unpaid medical debts at risk of marred credit, the consumer bureau says.
The agency's proposed changes come as it faces a legal challenge to its authority before the U.S. Supreme Court. Arguments in the case are expected to be heard this coming week, with a decision sometime next year.
Here are some questions and answers about medical debt:
Q: What should I do if I can't afford to pay a medical bill?
A: If you lack health insurance, check to see if you qualify for coverage under Medicaid, the federal-state health program for low-income people, or ask if you qualify for patient assistance programs that can reduce the amount you owe, said Chi Chi Wu, a senior attorney at the National Consumer Law Center. Nonprofit hospitals are required to offer the programs to maintain their tax-exempt status, she said, but criteria vary, and some hospitals may make it burdensome to enroll.
Be cautious, Wu said, if a provider offers you special financing to pay your medical bill. These credit cards sometimes come with deferred interest, which can greatly increase the amount you owe if you don't pay off the bill by a certain deadline.
If you do have health insurance, ask for a detailed bill and compare it with the "explanation of benefits" provided by your insurer to make sure the bill accurately reflects the care you received and what you owe, said Holloway at Tzedek DC. And keep medical debt in perspective when managing bills, she said. Give priority to paying bills like rent or a mortgage, and your car loan, over paying the medical debt.
For more patient resources, check online at RIPMedicalDebt.org.
Q: Should I pay medical bills with my credit card?
A: If you worry that you can't ultimately afford to pay the bills, you should avoid paying with a traditional credit card, Wu said. Once the debt is on a card, you may have to pay higher interest and owe late fees if you can't pay the debt on time. Plus, the debt isn't identified as medical debt, so it might not be eligible for current and proposed protections. (Colorado, however, does include debt on specialty medical credit cards under its medical debt reporting law.) Nearly one-quarter of adults with past-due medical bills reported paying all or part of their bills with a credit card and were later unable to make the minimum payment, according to the Urban Institute, a Washington think tank.
Q: How can I tell if medical debt has been improperly included on my credit report?
A: Get a copy of your credit report at www.annualcreditreport.com. The major credit bureaus have "permanently extended" their offer of free reports weekly. (Federal law requires free reports annually.) If you see a medical collections debt that you believe shouldn't be there, file a dispute with the credit bureaus. You can also file a complaint with the consumer bureau.
This article originally appeared in The New York Times.