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The Biden administration proposes banning medical debt from credit reports



CNN

In its latest effort to minimize the impact of medical debt on consumers, the Biden administration on Tuesday proposed banning such debt from credit reports.

The move would remove medical debt from the credit reports of more than 15 million Americans, raising their credit scores by an average of 20 points and leading to the approval of about 22,000 additional mortgages per year, according to a fact sheet from the U.S. government’s office . Vice President Kamala Harris.

According to the fact sheet, approximately 46 million people had medical debt listed on their credit reports in 2020.

The Consumer Financial Protection Bureau has been considering proposals since last fall that could spare millions of Americans with unpaid medical bills from having those debts appear on credit reports. Creditors, who use these reports to make underwriting decisions when people apply for mortgages, auto loans and other debts, could use only non-medical information in their evaluations.

Also, debt collectors would no longer be able to use the inclusion of medical debt on credit reports as leverage to pressure consumers to pay questionable bills.

Harris also called on states, municipalities and health care providers to take additional steps to eliminate medical debt, noting that $7 billion in American Rescue Plan Act funds will be used to eliminate the debt of nearly 3 million people by the end of 2026 to wipe. She also asked them to expand access to charity care to minimize debt accumulation and protect patients from aggressive debt collectors.

There are varying estimates of how many people have medical debt, but it represents a significant portion of the population.

About 15 million Americans have a total of more than $49 billion in medical debt in collections, according to an April report from the agency. That’s down from the $88 billion the agency reported in March 2022, after which the three national credit reporting agencies announced they would no longer include certain medical debt in reports.

Many health care bills contain errors, which can lead to protracted battles between people in debt, health insurers and medical providers.

Medical debt also hits the middle class particularly hard, according to a 2023 report from Third Way, a center-left think tank. While these people are likely to have better health insurance than lower-income Americans, the middle class are less likely to avoid care because of cost, but also less likely to qualify for financial assistance. At the same time, middle-class Americans are less likely than higher-income Americans to have sufficient available resources to cover high deductibles and out-of-pocket costs.

Nearly a quarter of middle-class Americans, or 17 million people, had unpaid health care bills in 2020, according to Third Way. That compares with 22% of lower-income Americans and just under 13% of higher-income people, according to the report, which is based on U.S. Census Bureau data.

The White House has been trying to reduce America’s medical debt burden as part of its efforts to help people cope with inflation and higher costs of living. In 2022, a four-point plan was established to help protect consumers, including having the agency investigate credit reporting companies and collection agencies that violate the rights of patients and families.

Also in 2022, the three largest credit reporting agencies – Equifax, Experian and TransUnion – announced they would remove nearly 70% of medical debt from consumer credit reports.

The agencies no longer count medical debts that have gone to collections based on consumer credit reports after they have been paid off. That eliminated billions of dollars in debt on consumer records.

Additionally, unpaid medical collection debts will no longer appear on first-year credit reports, while the previous grace period was six months. That gives people more time to settle bills with their health insurers or healthcare providers. And medical collection debts of less than $500 will no longer be included on credit reports.