TL/DR –
A federal court has overturned a rule designed to protect individuals with medical debt by keeping it off credit reports and out of credit decisions, allowing unpaid medical bills to factor into credit worthiness determinations. The rule, finalized by the Consumer Financial Protection Bureau (CFPB) before President Biden left office, was estimated to clear $49bn in medical debt for 15m Americans. The prevalence of unpaid medical bills, even among insured individuals, and the subsequent financial instability causing delays in seeking medical care, underline the need for better coverage, financial protections, and lower out-of-pocket costs.
Recent Ruling on Medical Debt and Credit Report
A federal court recently overturned a rule meant to safeguard people with outstanding medical debt from credit damage. This development allows credit agencies and lenders to again consider unpaid medical bills when assessing credit worthiness, affecting particularly those with high medical needs and costs.
CFPB’s Protection Rule Blocked
The Consumer Financial Protection Bureau (CFPB) had earlier finalized a rule prohibiting medical debt from influencing credit scores or appearing on credit reports. The agency predicted it would remove $49 billion in medical debt from the records of 15 million Americans. However, a lawsuit quickly followed, leading to the rule’s blockage.
Medical Debt’s Prevalence in Insured Seniors
Despite most people over 65 having Medicare coverage, CPFB data reveals that nearly four million couldn’t pay their medical bills in full in 2020, resulting to $53.8 billion in unpaid bills. This issue is even more common among older adults of color, those in poor health, or those earning between 100-200% of the federal poverty level.
Impact of Credit Agencies on Healthcare Debt
Another study shows that healthcare debt is particularly prevalent among the underinsured or uninsured. Credit reporting agencies, while voluntarily limiting the amount of medical debt they report, still hold onto some information and the possibility of reversing their decision.
The State and Federal Stance on Medical Debt Reporting
Although 15 states have prohibited medical debt reporting, they differ in whether they allow creditors to use medical debt in credit assessments. The blocked CFPB rule would have halted this reporting, safeguarding individuals with significant debts.
Rising Healthcare Affordability Risks
With an increase in Affordable Care Act (ACA) marketplace premiums and other factors, healthcare coverage and affordability risks are rising. Medicare Rights urges all states to eliminate medical debt reporting and realize that healthcare affordability problems can lead to delaying or foregoing necessary care.
Additional Resources
For more information, you can read about the recent ruling and its impact, or learn about the effects of medical debt on older adults.
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