In the U.S., largely because the health care system is privatized, medical debt encompasses a significant amount of consumer debt. This debt can strain people’s financial resources and prevent them from paying everyday bills.
Medical debt often inspires another negative effect on Americans: driving down their credit scores. Because medical providers turn over unpaid accounts to collectors more quickly than many other creditors, medical debt can be reflected on a person’s credit report (and credit score) sooner than other debt. According to the Consumer Financial Protection Bureau (CFPB), over half of third-party debt on Americans’ credit reports is medical debt.
Arguments for keeping medical debt off credit reports
As Vice President Kamala Harris explained earlier this year, “Credit scores determine whether a person can buy a home, whether they can buy a car, rent an apartment, or own a small business.” However, medical debt isn’t a good indicator of creditworthiness. Anyone, no matter how financially responsible they are, can become overwhelmed with medical debt amid a serious illness or injury in the family.
Another argument for keeping medical debt off credit reports is that often people owe less than they’ve been billed. Some 80% of medical bills have errors like duplicate charges or charges for services not performed. The average person without a medical background can’t spot these errors. Further as the director of the CFPB says, people are often receiving these bills “while dealing with serious illness” and are, therefore, less likely to question their accuracy.
Some changes have already been made
In an effort to prevent medical debt from harming Americans’ credit scores, the Biden administration has been taking steps to keep it off credit reports. The CFPB no longer allows any medical debt under $500 sent to collectors to be reflected on a person’s credit report.
The CFPB is also working to enact a new rule that would prevent the reporting of medical debt of any amount to credit reporting agencies. Whether that new rule is finalized before the end of the year and what happens in a new administration remain to be seen.
Regardless of what happens with that proposed rule change, it’s important to make sure that your medical bills (and your credit reports) are accurate. Further, you may be able to negotiate medical bills down to an amount that’s manageable. It’s important to know your options to preserve your financial future. Getting experienced legal guidance is a good first step if your medical debt has become overwhelming.
