The share of Americans with unpaid medical bills weighing on their credit files has fallen in the two years since the major credit reporting agencies — Equifax, Experian and TransUnion — changed the way they report those debts, a federal regulator said this week.
But even with the changes, about 15 million people — many of them living in low-income communities and the South — still have medical bills on their credit files, the Consumer Financial Protection Bureau reported. Rohit Chopra, the bureau's director, said in a statement that “further reforms” are needed to remove medical debt from credit history. The bureau is considering a rule to eliminate medical debt from consumer credit files.
The bureau estimated in a 2022 report that well over half of the debts listed as in collections on credit reports were medical debts. If your credit report contains unpaid medical bills, it can be difficult to qualify for loans and credit cards, get cell phone service, rent an apartment, or even secure a job because landlords and employers also check applicants' credit.
Still, the bureau's research suggests that medical debt is a less meaningful measure of a borrower's creditworthiness than other types of debt, largely due to the complexity of America's health care system. Unexpected medical bills can arise, and many people think their health insurance will cover the costs. They often have to contact insurers, hospitals or doctors and may end up haggling over their correct share of the bill. And the consumer bureau previously found that medical debt collections reported to credit bureaus were “plagued by inaccuracies.”
“There’s a lot of back and forth,” said Breno Braga, a senior research fellow at the Urban Institute think tank and co-author of a recent report on medical debt. “You don’t see that with any other type of debt.”
In 2022, the three major credit reporting agencies made voluntary changes to the way they include medical bills on credit files as part of the Consumer Bureau's review. They agreed to exclude all medical debt collections that were paid and less than a year old to allow time for the patient's responsibility for the bill to be determined. And as of April 2023, the credit bureaus have stopped including medical collections for amounts under $500. (Hospitals and doctors send unpaid bills to collection agencies, which may then report them to the credit bureaus.)
The changes had an impact: About 5 percent of Americans had unpaid medical bills on their credit reports last June, up from 14 percent in March 2022, the consumer bureau found. Older Americans benefited the most: Last June, just 3 percent had medical debt collection delinquencies listed on their credit reports, down from 14 percent.
The credit bureaus said there was no need for the federal government to further restrict reporting of medical bills. “We believe that what has been done is enough,” said Eric J. Ellman, senior vice president of public policy and legal affairs at the Consumer Data Industry Association, which represents the credit reporting agencies.
Medical bills remaining on credit reports are, on average, higher than they used to be. (As smaller debts have been removed from reports, the average debt has risen from $2,000 to over $3,000.) When a consumer applies for a mortgage or auto loan, the lender taking the risk should know whether The borrower did this, said Ellman, with significant medical debt.
Diane Thompson, a senior adviser to Mr. Chopra, said in an interview that removing medical debt from credit reports eliminates the “coercive aspect” of bill collection. Often, she said, “they are placed there to allow debt collectors to collect on bills that may or may not be accurate.”
Ms. Thompson also noted that the current changes to medical debt reporting are voluntary and that the industry can revoke them at any time.
Mr. Braga of the Urban Institute noted that removing medical debt from credit reports does not mean the debt itself has disappeared. In most states, hospitals and medical providers can still take their patients to court to collect compensation.
There could also be unintended consequences of removing all medical debt from credit reports, he said. For example, health care providers may require upfront payment for services if they fear they will not be able to collect the money later. Or they could increase their advertising of medical credit cards, which could result in higher interest costs on patients' bills.
Here are some questions and answers about medical debt and credit reports:
Why do so many Americans have medical debt?
According to a report from the Peterson Center on Healthcare and KFF, a healthcare research group, medical debt is a persistent problem even though over 90 percent of the U.S. population has some type of health insurance. High deductibles — the amount patients must pay out of pocket before insurance will pay — mean some people can't afford the cost of care even if they have insurance. KFF surveys show that people with medical debt report going without food, clothing and other essentials to pay their medical bills. For people with chronic illnesses or cancer, medical costs can increase over time. For example, people with cancer have more debt than people who have never had the disease.
Do some states prohibit reporting medical debt to credit bureaus?
At least two states have taken steps to keep medical debt off credit reports. Last year, Colorado became the first state to ban including medical debt on credit files, followed by New York.
How can I check if my credit report contains medical debt?
You can view your online credit reports from the three major credit bureaus for free every week at AnnualCreditReport.com. But some consumers had difficulty using the site, said Ryan Reynolds, financial policy analyst at Consumer Reports. A recent survey of about 4,300 volunteers recruited by Consumer Reports and WorkMoney, a nonprofit organization dedicated to helping consumers improve their financial lives, found that 11 percent of participants said their were able to check credit files, reported difficulties in receiving their reports, mainly due to technical difficulties or problems with outdated identity verification information.
“It’s clunky,” said Carrie Joy Grimes, WorkMoney’s chief executive. (A quarter of the early participants were unable to receive their reports; some were unable to answer the security questions, while others received error messages.)
Consumer Reports and WorkMoney have asked the credit reporting agencies that sponsor the site to make it easier for consumers to use.
In an emailed statement, the Consumer Data Industry Association said, “The consumer reporting industry shares the same goal with credit reports as consumers, attorneys and regulators: they should be accurate and complete.”
Nearly half of the volunteers who took part in the survey found errors in their reports, and about a quarter found “major” errors that could harm their credit, such as: Such as late or missed payments that they knew had been made on time, or debts that were reported as being transferred to collection but that were not theirs.
If you find an error on your credit report, Mr. Reynolds recommends filing a paper dispute. Make copies of bank statements and other documents to create a paper trail and send them to each of the three credit bureaus by certified mail with a receipt requested. (Keep copies for yourself.) If you don't find a solution this way, he said, he filed a complaint with the Consumer Financial Protection Bureau.