A new proposal from a group of Democratic senators would prevent medical debt from negatively impacting a consumer’s credit score. But the situation is more complex than it seems, and the proposal could end up hamstringing credit issuers.
“Medical debt places patients at risk of downgraded credit and falling victim to predatory practices,” said Ohio senator Sherrod Brown, who is spearheading the effort. “We ask the CFPB to take concrete steps towards tackling the problems surrounding medical debt through proposing rules to further protect patients’ finances, dignity, and health.”
The senator’s office points out that more than 41% of Americans carry medical debt, suggesting that many individuals are susceptible to credit score repercussions. But this figure, taken from a 2022 survey by the Kaiser Family Foundation, is somewhat misleading. This percentage includes anyone who has put a medical bill on a credit card, even if they expect to pay it off in a month or two.
Minor Medical Debts Are Already Ignored
Perhaps more importantly, credit reporting agencies stopped including any medical debt of less than $500 in their assessments of consumers’ scores last year. In addition, credit bureaus provide a 365-day waiting period before unpaid medical debts affect a consumer’s credit record.
The senators’ proposal follows a request from the Biden administration last September to bar unpaid medical bills from affecting patients’ credit scores. The Consumer Financial Protection Bureau argued that it wasn’t a good indicator of a person’s ability to handle credit, because medical costs can be both unpredictable and costly.
Credit scores are not an indicator of how responsible or fortunate a person is; they are intended to indicate the likelihood that a person will be able to repay debts. Having sizable medical bills to pay reduces a person’s ability to pay other debts.
Medical debt is a problem affecting approximately 14 million people in the U.S., with debts exceeding $1,000, according to a report from the Peterson-KFF Health System Tracker.
The CFPB estimates that $88 billion in medical debt is reflected on Americans’ credit reports. At the same time, the total amount is likely higher because a certain amount is not reported to the credit agencies. An analysis of government data by Peterson-KFF estimates that people in the United States owe at least $220 billion in medical debt.
In recent years, healthcare providers have been increasingly promoting financing options—such as medical credit cards and installment loans—that would tend to inflate customers’ medical debt levels. The senators’ proposal also addresses predatory lending practices and would eliminate deferred interest in medical credit products.
