Biden Administration Proposes Rule to Ban Medical Debt from Credit Reports
In a significant move aimed at improving Americans’ ability to own a home or buy a car, the Biden administration is set to propose a rule that would ban medical debt from credit reports. The announcement will be made by Vice President Kamala Harris and Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra. This rule comes as President Joe Biden seeks to address voters’ concerns about lowering costs.
According to Chopra, the research conducted by the CFPB has shown that medical bills on credit reports do not accurately predict a person’s ability to repay other types of loans. This means that individuals’ credit scores are being unfairly impacted by this practice. By banning medical debt from credit reports, the new rule aims to rectify this issue.
The CFPB’s research estimates that this rule change could enable an additional 22,000 people to qualify for safe mortgages each year. This positive impact on credit scores could also benefit lenders by allowing them to approve more borrowers.
While some major credit report companies have already stopped considering medical debt in their calculations, there are still 15 million Americans burdened with $49 billion of medical debt that affects their credit scores. The proposed rule seeks to extend the ban on medical debt across all credit reporting in the United States.
Medical debt is a widespread issue in the country, affecting two out of every five Americans, according to the health policy research organization KFF. Many individuals find themselves with thousands of dollars in medical debt. When these debts go into collections, credit scores suffer, making it difficult to obtain car or home loans without high interest rates.
The personal story of Lexi Coburn illustrates the challenges faced by those with medical debt. Coburn incurred medical debt when she was 23 and uninsured. Despite later enrolling in health insurance through the Affordable Care Act, her medical debt continued to accumulate, hindering her ability to qualify for a reasonable car loan. The cycle of financial hardship caused by medical debt affects individuals’ ability to pay off their debts and can lead to a domino effect.
In addition to addressing the impact of medical debt on credit scores, the CFPB rule also aims to tackle the issue of incorrect and confusing medical bills. The agency frequently receives complaints about billing disputes, which can result in bills appearing on credit reports. By simplifying and clarifying medical bills, the rule seeks to empower consumers and reduce the likelihood of credit score damage.
Experts who support the proposed rule highlight the low repayment rates for medical debt. Matt Notowidigdo, a professor at the University of Chicago’s Booth School of Business who studies health economics, explains that people are already struggling to pay down medical debt. Therefore, he does not anticipate a significant change in behavior as a result of this policy change. To address America’s medical debt problem effectively, Notowidigdo suggests focusing on enrolling more people in adequate health care coverage from the beginning.
However, if the new rule leads to fewer people paying their medical bills, hospitals and health care systems may face financial challenges. Ge Bai, a professor at Johns Hopkins University who studies accounting health policy, suggests that hospitals may have to find alternative ways to make up for the loss in revenue. This could potentially result in more stringent payment requirements, such as demanding payment before providing medical care, which may disproportionately affect low-income patients.
Despite concerns from industry groups about the potential negative effects, Chopra asserts that individuals who do not pay their medical bills will still face consequences such as collection actions and lawsuits. He emphasizes that the credit reporting system should not be used as a weapon against those who have already paid their bills.
In conclusion, the Biden administration’s proposed rule to ban medical debt from credit reports is a significant step toward improving Americans’ financial well-being. By recognizing that medical bills do not accurately reflect a person’s creditworthiness, this rule aims to alleviate the burden of medical debt on individuals’ credit scores. However, it is essential to address the root causes of medical debt by ensuring adequate health care coverage for all Americans.
