Federal watchdog calls for eliminating medical debt from credit reports

By pure chance, my daughter ended up in a network hospital. Luckily, the majority of his medical bills — minus some co-payments — were covered.

But a reader made a prophetic observation after I wrote about the ordeal, asking me to write a follow-up on “how she coped with medical bills…and maybe inadequate insurance.”

Indeed, the dizzying flow of account statements caused my 26-year-old daughter a lot of stress. She had received services from out-of-network medical professionals at the network hospital. Eventually, some of the charges were dropped, but she is still in a financial vacuum, waiting to see if her insurance will cover thousands of dollars in costs for the services she received during her nine-day hospitalization.

Such situations are typical, according to the Consumer Financial Protection Bureau, which recently issued a report criticism of the Byzantine system of medical billing in the United States.

The CFPB questioned whether this debt should even be reported to credit bureaus and therefore factored into credit scores, which are used to determine people’s creditworthiness for loans, apartments or insurance.

In the second quarter of 2021, 58% of bills that were in collections and on people’s credit files were medical bills, according to the CFPB.

When most of us think of credit reports, we think of obligations for which we have taken out a specific loan or credit card,” CFPB director Rohit Chopra said in an interview. “You go to a service provider or to a hospital, sometimes you have no idea of ​​the services that are being rendered to you. All you know is that you are networking.

Overdue medical debt reported by a collection agency or debt buyer should not appear on a consumer’s credit report for 180 days from the date of the first default. This is supposed to give insurance companies time to process payments, according to the CFPB.

When the bills finally arrive, people often find themselves in a “bureaucratic nightmare,” Chopra said. And sometimes they don’t even owe the debt.

And then what happens is you feel coerced or extorted when they say they’re going to put it on your credit report,” he said.

CFPB research shows $88 billion in medical debt on consumer credit reports as of June 2021.

While young people more frequently see their medical debt being collected, older adults and veterans are also heavily affected by medical debt. Blacks and Hispanics, as well as low-income people of all races and ethnicities, are also more likely to have medical debt, according to the CFPB report.

A report published this week by the National Consumer Law Center examined how medical debt disproportionately affects black households.

“Because of racial inequalities in health and wealth, the medical debt crisis has hit black families harder than white families,” wrote Berneta Haynes, an NCLC attorney and author of the report. “In recognition of the explicit role that racism plays in medical debt and health disparities, advocates and leaders should take action to protect black patients from unaffordable medical bills that trap families in a cycle of insecurity. financial.”

Although insured people were largely protected from the high medical costs associated with covid, many still received bills for hospital care. Then there’s this: By August 2021, 72% of major insurers had stopped waiving cost-sharing for covid-related hospitalizations, the CFPB said.

And, of course, the uninsured face significant covid-related medical debt.

So should medical debt be excluded from credit reports?

Not necessarily, according to the Consumer Data Industry Association (CDIA), the trade group that represents, among others, the three major credit bureaus – Equifax, Experian and TransUnion.

Large medical debt could signal to a mortgage lender that a potential borrower may not be able to service a home loan, said Francis Creighton, president and CEO of CDIA.

“In the mortgage context, they look at your debt-to-income ratio,” Creighton said. “And that’s where medical debt can be useful in trying to figure out what your total debt situation is. We are doing people a disservice when we give them loans they cannot afford to repay.

Chopra pointed out that medical billing data is not a good predictor of people’s ability to pay off other debts. In fact, the new credit reporting models do not weigh on medical recoveries as much as other forms of credit. And when that data is removed, people’s scores can increase significantly, by up to 25 points.

Yet, older scoring models still used by lenders account for overdue debt.

One good thing that happened is that starting this year, under the No Surprises Act, insurance companies, plan providers and healthcare facilities are prohibited from sending out surprise bills for emergency services or even non-emergency care from out-of-network hospitals, doctors or other providers.

According to Kaiser Family Foundation.

So much is unknown about how long people will suffer from covid-related conditions requiring long-term medical care, making this a good time to consider removing medical debt from people’s credit reports.

“I was incredibly overwhelmed and outraged by the billing process,” my daughter said. “It’s crazy that I was supposed to know the right hospital to go to during a major health crisis. Even though I ended up in the right place, it still didn’t protect me. After a health crisis major, your only job should be to rest and recover, not to panic about how you’re going to pay the medical bills.

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