New rule bans inclusion of medical debt on credit reports

Medical debt, credit reporting impact patients, providers

Medical debt is a major issue for most Americans. The popularity of high-deductible health plans and other forms of cost-sharing has put a greater burden on consumers to pay for their healthcare services. However, even small medical expenses can be unaffordable for some people, while a growing number of people with chronic conditions might encounter more healthcare services than they anticipated, leading to greater patient financial responsibility.

Past-due medical debt affects over one in seven adults, according to research from the Urban Institute. Nearly two-thirds of those adults also had incomes below 250% of the federal poverty line.

A recent analysis from KFF shows that people with medical debt reduce spending on essentials, like food and clothing, because of their medical debt. Additionally, these people spend down their savings, borrow money from friends and family members or take on additional debt to pay for medical bills.

Medical debt is more likely to impact people with poor health, disabilities and low incomes, KFF finds. The bulk of medical debt is also owed by people with over $10,000 in other debts.

While medical debt is a problem for many Americans, healthcare providers have also been affected by growing patient financial responsibility. Providers are leaning more on their patients to collect revenue because of cost-sharing arrangements, which put the onus on patients to pay first before insurance coverage kicks in. This has been a shift in revenue cycle management, leading to a rise in payment plans, digital payment options and simpler patient billing.

However, the new CFPB rule might throw another wrench in revenue cycle management. Some providers are concerned that banning medical debt reporting on credit reports could incentivize some patients to not pay what is owed to their providers.

Major credit bureaus already wiping medical debt

Three major credit reporting companies -- Equifax, Experian and TransUnion -- announced in May 2023 that they removed all paid medical debts from consumer credit reports, as well as medical debts less than a year old. The companies also took steps to wipe all medical collections under $500 from consumer credit reports.

The credit reporting companies acknowledged at the time that "medical debt is generally not taken on voluntarily" and removing medical debts with an initial balance of under $500 would "have a positive impact on people's personal and financial well-being."

Nearly 70% of total medical debt collection tradelines reported to the Nationwide Credit Reporting Agencies (NCRAs), which Equifax, Experian and TransUnion belong to, was wiped. In 2022, NCRAs also committed to supporting consumers with medical debt collection reporting changes.

The moves made by NCRAs came as Congress and federal agencies focused on helping Americans with medical debt. For example, the No Surprises Act enacted in 2022 aims to protect consumers from surprise medical bills stemming from care they expected to be covered by insurance, such as emergency services rendered by out-of-network providers.

CFPB has also told debt collectors and consumer credit reporting companies to stop collecting, furnishing and reporting any invalid medical debt.

The new rule banning medical debt on consumer credit reports will go into effect 60 days after it is published in the Federal Register. It is scheduled to be published on Jan. 14, 2025.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.