The Biden administration announced a major initiative Thursday to protect Americans from medical debt and outlined plans to develop federal rules to prevent unpaid medical bills from hurting patients’ credit scores.
If enacted, the rules could help tens of millions of people who have medical debt on their credit reports by eliminating information that can hurt consumers’ scores and make it harder for many to get a job or rent an apartment or secure a car loan.
New rules would also represent one of the most significant federal measures to combat medical debt, a problem that burdens about 100 million people and forces legions to take on extra work, abandon their homes and ration food and other essentials, according to KFF Health News -NPR investigation found.
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“No one in this country should have to go into debt to get the quality health care they need,” said Vice President Kamala Harris, who announced the new steps alongside Rohit Chopra, head of the Consumer Financial Protection Bureau (CFPB). The agency will be tasked with drafting the new rules.
“These actions will improve the credit scores of millions of Americans so they can better invest in their future,” Harris said.
Adopting new regulations can be a lengthy process. Administration officials said Thursday that the new rules would be developed next year.
Such an aggressive move to restrict credit reporting and collections by hospitals and other medical providers will almost certainly draw industry opposition as well.
At the same time, the Consumer Financial Protection Bureau, created in response to the 2008 financial crisis, is under attack from Republicans, and its future could be jeopardized by a case before the Supreme Court, whose conservative majority has weakened federal regulatory powers.
But the Biden administration’s move drew widespread praise from patient and consumer groups, many of whom have been pushing for years for the federal government to strengthen protections against medical debt.
“This is an important milestone in our collective efforts and will provide immediate relief to people whose credit has been unfairly affected simply because they were sick,” said Emily Stewart, executive director of Community Catalyst, a Boston nonprofit that helped to direct the national medical debt effort.
Dana Downey of Pennsylvania speaks at a roundtable on Capitol Hill on September 13, 2023, as health activists and community members came together to urge the Biden administration to take additional action on medical debt. Tasos Katopodis/Getty Images for Community Catalyst
As a KFF Health News analysis shows, credit reporting, a threat designed to get patients to pay their bills, is the most common debt collection tactic used by hospitals.
“A negative credit report is one of the biggest problems for patients with medical debt,” said Chi Chi Wu, a senior attorney at the National Consumer Law Center. “When we hear from consumers about medical debt, they often talk about the devastating impact that poor credit due to medical debt has had on their financial lives.”
Although a single black mark on a credit score may not have a major impact for some people, for those with large unpaid medical bills, the impact can be devastating. For example, there is growing evidence that deteriorating credit scores from medical debt can jeopardize people’s access to housing and lead to homelessness in many communities.
At the same time, CFPB researchers have found that medical debt — unlike other types of debt — does not accurately predict a consumer’s creditworthiness, calling into question its usefulness on a credit report.
The three largest credit agencies — Equifax, Experian and TransUnion — said they would no longer consider medical debt on credit reports starting last year. Excluded debts included settled bills and bills under $500.
But the agencies’ voluntary actions left out millions of patients with higher medical bills on their credit reports. And many consumer and patient advocates called for more measures.
The National Consumer Law Center, Community Catalyst and about 50 other groups sent letters to the CFPB and IRS in March urging stronger federal action to curb hospital debt collections.
State leaders have also taken steps to expand consumer protections. In June, Colorado passed a groundbreaking bill that would ban medical debt from being listed on residents’ credit reports or factored into their credit scores.
Many groups have called on the federal government to ban tax-exempt hospitals from selling patient debt or denying medical care to people with past-due bills, a practice that remains widespread in the U.S., KFF Health News found.
Hospital leaders and debt collection industry officials have warned that such restrictions on medical providers’ ability to pay their bills could have unintended consequences, such as allowing more hospitals and doctors to require upfront payment before providing services.
Others warned that relaxed credit requirements could make it easier for consumers unable to handle higher levels of debt to access loans they may not be able to repay.
“It is unfortunate that the CFPB and the White House do not consider the numerous consequences that arise when medical providers are singled out in their billing compared to other professions or industries,” said Scott Purcell, executive director of ACA International, the leading industry association the debt collection industry.
About this project
Diagnosis: Debt is a reporting partnership between KFF Health News and NPR that examines the extent, impact and causes of medical debt in America.
The series draws on original KFF interviews, court records, federal data on hospital finances, contracts obtained through public records requests, data on international health systems, and a year-long investigation into the financial aid and collection policies of more than 500 hospitals across the country.
Additional research was conducted by the Urban Institute, which analyzed credit bureau and other demographic data on poverty, race and health status for KFF Health News to find out where medical debt is concentrated in the U.S. and what factors are associated with high debt levels.
The JPMorgan Chase Institute analyzed records from a sample of Chase credit cardholders to examine how high medical expenses might affect customers’ balances. And the CED Project, a Denver nonprofit, worked with KFF Health News on a survey of its clients to examine links between medical debt and housing instability.
KFF Health News journalists worked with KFF pollsters to design and analyze the KFF Health Care Debt Survey. The survey was conducted online and by telephone in English and Spanish from February 25 to March 20, 2022, among a nationally representative sample of 2,375 U.S. adults, including 1,292 adults with current health debt and 382 adults with health debt in the past five years. The margin of sampling error is plus or minus 3 percentage points for the entire sample and 3 percentage points for those with current debt. The margin of sampling error may be higher for results based on subgroups.
Reporters from KFF Health News and NPR also conducted hundreds of interviews with patients across the country; spoke with physicians, healthcare executives, consumer advocates, debtor attorneys and researchers; and reviewed numerous studies and surveys on the topic of medical debt.
KFF Health News is a national newsroom that produces in-depth journalism on health issues and is one of KFF’s core operating programs – an independent source of health policy research, polling and journalism. Find out more about KFF.