The Biden administration on Tuesday proposed removing medical debt from the credit reports of more than 15 million Americans to make it easier for them to qualify for auto, home and small business loans.
The proposed rule, which will undergo a public comment period, would not take effect immediately. It would prohibit health care providers from sharing medical debt with lenders and prohibit those providers from taking medical information into account when making loans.
Vice President Kamala Harris said the move would “improve the financial health and well-being of millions of Americans.”
“One of the most serious consequences of medical debt is the damage it does to a person’s credit rating,” Ms. Harris said. “Medical debt makes it harder for millions of Americans to get a car loan, a home loan or a small business loan, which in turn makes it harder to make ends meet, let alone get ahead. “That’s just not fair.”
Medical debt often plays a large role in Americans’ lives: an estimated 20 million owe more than $250 to healthcare providers. Black and Latino Americans are more likely to report outstanding bills, as are people with low incomes or without insurance. In surveys, Americans have described taking out loans and working overtime to pay off these debts.
As the economy and inflation have angered voters during President Biden’s first term, his administration’s efforts to contain costs have become a focus of his re-election campaign. His advisers believe measures such as price cuts for prescription products like insulin or inhalers are already being felt by voters and will help improve perceptions of Mr. Biden’s domestic policy agenda. The president has also relied on such economic successes to convince voters of color – a base of his constituency – that he has implemented his racial justice agenda, even as broader proposals have been blocked by the courts.
The policy most likely won’t take effect until early next year, said administration officials, who spoke on condition of anonymity to discuss details of the proposal. The public comment period runs until August 12th.
Ms. Harris said the proposal was part of a broader effort by the White House to address medical debt: The government has forgiven $650 million of it so far. The new policy will not reduce medical debt, nor will it stop all aggressive debt collection tactics. It only affects information about unpaid debts that healthcare providers have sold to debt collectors.
But the Biden administration plans to sell the rule to help Americans achieve greater financial freedom.
Rohit Chopra, the director of the Consumer Financial Protection Bureau, said Tuesday that 2022 research by the independent federal agency found that medical debt collections appeared on 43 million credit reports.
“It doesn’t eliminate consumers’ underlying medical debt,” said Fredric Blavin, senior research fellow at the Urban Institute. “This policy addresses the symptom rather than the root cause.”
Mr. Blavin expected the policy would provide a boost to consumers who need better credit to rent homes or buy cars. But he also said there could be unintended consequences: Hospitals, for example, might be more likely to try to collect on their debts through other means — such as suing patients, garnishing their wages or cutting off care — because they no longer have the reporting tactics to credit reporting agencies.
“It is uncertain what impact these will have,” he said. “Hospitals may be more aggressive in advance if they know this tool is not available to them.”
These debts, worth tens of billions, lie with collection agencies to which hospitals often send bills that patients have left unpaid for months or years. This debt could prove extremely damaging to patients’ credit scores for decades to come.
That has changed significantly in recent years, as the three national credit bureaus — TransUnion, Equifax and Experian — have removed much of this debt from credit reports. In the last two years, they have stopped reporting debts of less than $500 and debts that have been in the collection phase for less than a year.
These changes have removed medical debt from the credit reports of millions of Americans, according to a recent Urban Institute study. The share of Americans with unpaid healthcare bills on their credit reports fell from 12 percent in August 2022 to 5 percent in August 2023.
The Urban Institute study found that Americans whose medical debt was removed from their credit reports during this period saw their credit scores increase by an average of 30 points, moving them from the “subprime” category to near the “prime” credit category moved.
About 15 million Americans still have $49 billion in outstanding medical debt on their credit reports, according to a study by the Consumer Financial Protection Bureau, the government agency that will implement the new rule.
These patients are expected to benefit most from the Biden administration’s policies.
“There’s a good argument that credit reports should reflect bad behavior, not bad luck,” said Neale Mahoney, a Stanford economist who studies medical debt. “Medical debt is often the result of my child breaking his arm, me being unlucky and now having a lot of bills.”
Mr. Mahoney released a study this year looking at the impact of not only stopping reporting medical debt to credit agencies but eliminating it entirely. The results were surprising, showing no improvement in credit scores or access to health care for the vast majority of patients.
However, there was a small subset of patients who saw improvements: those whose credit reports showed only medical debt and no other types of outstanding loans or bills. For this group, Mr. Mahoney said, the Biden administration’s policies may be most important.
“Some people will benefit from this,” Mr Mahoney said. “But for others, their financial situation was already dire, so the impact on their access to credit will be less.”
Stacy Cowley contributed reporting from New York.
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2024-06-11 23:20:46
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