This month, federal courts blocked a rule that aims to protect people whose medical debts are by avoiding credit reports and exiting credit decisions. This means that credit reporting agencies and lenders are once again free to use unpaid medical expenses when determining credit lines, which especially harms people with high medical needs and expenses.
CFPB rules overturned in court
Earlier this year, just before President Biden left the office, the Consumer Financial Protection Bureau (CFPB) finalized a rule that prohibited the inclusion of medical debt in credit scores or appearances in credit reports. It also prohibits potential creditors from using medical debt to decide whether an individual is eligible for credit eligibility. As a result, 15 million Americans have removed $49 billion from their records, CFPB said. The lawsuit was filed immediately, saying that the CFPB was beyond its power and that the agency changed direction under the Trump administration. Instead of defending the rules in court, the agency agreed with the plaintiff that the rules should be blocked, and the court agreed.
Medical debt is common, even for the insured
Most people aged 65 and older have health insurance coverage. But even so, CFPB data suggests that nearly 4 million people in that age have medical expenses that they cannot pay in full in 2020. This burden is not evenly spread. People with unpaid bills are more likely to be older people of color, have poor health, have other debts or incomes between 100 and 200% of federal poverty levels.
This echoes previous studies on the prevalence and consequences of medical debt among Medicare beneficiaries, which found that adults aged 65 and over are debtors due to their own or others’ medical expenses. Even relatively small debts can have lasting consequences. A collection agency contacted nearly 30% of beneficiaries with unpaid medical or dental bills, and 23% said health care debt had a negative impact on their credit score.
For many people with health-related debt, the resulting financial instability causes them to avoid or delay care due to costs.
For many people with health-related debt (62%), the resulting financial instability causes them to avoid or delay care due to costs. 48% postponed medical appointments, 31% did not receive tests or treatments proposed by their doctors, and 28% did not take prescription medications as directed. Other expenses have also changed. One in five (42%) cuts household goods, food or clothing; 39% drains all or most of their savings; 31% increase credit card debt for non-medical purchases; one in five loans (21%) or fails to pay other bills (18%).
Credit Reporting Agency Action
Other studies have also shown the prevalence of health care debt, especially for those who are not insured or underinsured. As bills enter collections, some hospitals and other providers will use the threat of credit reports. This kind of credit reporting can drive homelessness and other financial disasters.
These three major credit reporting agencies have voluntarily limited the amount of medical debt they include in their credit reports for several years, but they still report some information and retain the option of the reverse process.
There are still some bans, but no federal solution
15 states also ban medical debt reporting, although states allow creditors to use medical debt to assess credit value.
The CFPB rule will eliminate this reporting and use, better protecting those with huge debts, and prohibiting institutions from reversing courses and opting to report all medical debts again.
Risk of increased affordability
This disappointing reversal is the greater risk of coverage and affordability due to the expected Affordable Care Act (ACA) market premiums, budget bill currencies and Medicaid, Medicare, Medicare, ACA, federal debt-triggered Medicare cuts, and other factors.
We recognize that medical debt is a symptom of a larger problem with healthcare affordability.
Medicare rights support CFPB rules and other actions to protect people from high medical expenses and debt. We urge all states to enact laws to eliminate medical debt reporting and use, while recognizing that medical debt is a symptom of a greater affordability problem for health care, which may drive people to delay or lack care. People with various insurances, including health insurance, need better coverage, financial protection and lower out-of-pocket expenses. Those without insurance need affordable, high-quality coverage options to support their well-being and financial security.
Further reading
Read more about the rules and court rulings.
Read more about the impact of medical debt on older people.
