Roughly 100 million people in the United States contend with medical debt, and about 15 million of those people also carry medical debt on their credit reports. In a time where it can be hard to find consensus on anything, medical debt remains the rare issue transcending politics—over 90% of U.S. adults agree that elected officials should pass policies that protect people with serious illnesses like cancer from medical debt and harassment from collection agencies. A tremendous amount of work remains ahead of us to eliminate the harms of medical debt, and the final rule to remove and ban the inclusion of medical debt from credit reports is an important first step that we cannot afford to lose.
What does the final rule do?
Specifically, this change:
- Removes roughly $49B in medical bills from the credit reports of about 15M Americans,
- Bans the inclusion of medical bills on credit reports used by lenders,
- Prohibits lenders from using medical information in their lending decisions, and
- Bans lenders from using medical devices as collateral for loans and bars them from repossessing the devices—meaning lenders cannot take someone’s wheelchair, ventilator, or prosthetic limb.
It is important to note this is not a debt abolishment program—this rule simply eliminates extraneous harm to patients and helps prevent them from being driven deeper into debt. Collectors often use pressure tactics (including threatening to report overdue payments to the credit bureaus) to scare patients into paying inaccurate or inflated bills. This rule will give patients, providers, and creditors more time to address billing disputes or inaccuracies and make sure people aren’t being forced to pay something they do not owe.
Why is it important?
Medical debt is different from other types of consumer debt—no one chooses to get sick or hurt, and no one should be penalized for seeking the health care they need. Removing medical debt from credit reports acknowledges this reality, and helps people get their financial lives back on track. Once this rule is implemented, people with medical debt on their credit reports nationwide can expect to see their scores increase by an average of 20 points; following the voluntary removal of medical debt under $500 from credit reports by the three major credit bureaus in 2023, the average credit score for people with medical debt rose from subprime (below 600) to near prime (between 601 and 660). For many people, this can mean finally being able to obtain a mortgage or take out a loan to start a small business.
The debt collection industry has voiced concerns about this change, arguing that it removes important information from people’s credit histories and that physicians will be forced to demand payment upfront—this does not align with what we know. People go to great lengths to pay their medical bills, skipping meals and medications to try and make a payment. There is no reason to anticipate this change will lead to an onslaught of unpaid bills—an unaffordable bill will remain an unaffordable bill, and providers will continue to have a suite of other collections actions available to them like lawsuits and wage garnishment. Eliminating the threat of harming the patient’s credit simply helps keep them from being driven further into the cycle of medical debt while also making sure creditors have access to more accurate data. We want debt markets to function well, and credit scores should reflect the debt people choose to take on—medical debt distorts the lending market and sends the wrong signal on credit worthiness.
Indeed, nine states have already passed full credit reporting bans (sometimes with unanimous bipartisan consent), while 10 other states have partial bans with significant guardrails, and more states (including South Dakota, Texas, and Washington) are seeking to pass legislation with full bans. Lending markets have not collapsed in these states and people continue to receive care and pay for their medical bills—with just a little more breathing room and a little less stress. It is critical we allow this rule to move forward, as it simply means patients are protected from harms they never should have been exposed to in the first place. Medical debt is an everyone issue, and banning its inclusion on credit reports is an important first step in bringing about the change people of all parties are hungry to see.