Dive Brief:
On the way out the door, the Biden administration finalized a rule that removes medical debt from consumer credit reports and bars lenders from using medical information in lending decisions.
The rule will remove an estimated $49 billion of medical debt from approximately 15 million Americans’ credit reports, raising impacted consumers’ credit scores by an average of 20 points, according to Vice President Kamala Harris, who announced the final rule Tuesday.
The administration has also directed states and localities to use American Rescue Plan funds for medical debt relief. Harris said the funds have already been used to erase over $1 billion in debt and are tracking toward eliminating $15 billion of medical debt.
Dive Insight:
More than 100 million Americans struggle with medical debt, and medical debt is the largest source of debt in collection across the country, according to the White House.
The bills are prone to errors, according to the Biden administration, and often contain duplicative charges or fees for services never rendered. Still, they’ve been used to deny consumers financial opportunities.
The Consumer Finance Protection Bureau has found lenders use medical debt to deny thousands of mortgage applications — despite the agency’s belief that medical bills are a “poor predictor of whether [someone] will repay a loan.”
Research also suggests the impact of medical debt on patients’ credit scores can linger long after treatment ends. For example, a recent study from Beth Israel Deaconess Medical Center and Harvard Medical School in Boston found that dings to some cancer patients’ credit reports persisted for 9.5 years after diagnosis.
The three major credit bureaus — Equifax, TransUnion and Experian — removed medical debt under $500 from consumers’ credit reports in 2022. The Biden administration set its sights on removing all medical debt from consumer reports in June.
The rule has been cheered by watchdog organizations and patient support groups.
Lisa Lacasse, president of the American Cancer Society Cancer Action Network, referenced a recent survey from her organization finding nearly half of cancer patients and survivors held medical debt related to their treatment, despite 98% of patients holding insurance at the time.
“The Consumer Financial Protection Bureau’s new rule is a welcome step toward lessening the long-lasting, devastating effects of medical debt on individuals’ and families’ financial wellbeing,” she said.
Others, including Allison Sesso, CEO and president of Undue Medical Debt — a watchdog organization focused on ending medical debt — said that removing medical bills from credit reports is just the first step.
“The problem is clearly bigger than credit scores, but this is still a big step in the right direction,” Sesso said in an email to Healthcare Dive.
The Biden administration has made a cross-agency push to reduce medical debt.
Last year, the Internal Revenue Service said it would increase audits of tax-exempt hospitals’ charity care programs. In addition, the Department of Veteran Affairs said it would streamline its debt forgiveness process and the CFPB issued updated guidance for debt collectors clarifying it was illegal to collect on invalid medical debt.
The new rule — as well as the Biden administration’s other initiatives on medical debt — could be rolled back when President-elect Donald Trump takes office later this month.
However, Sesso is cautiously optimistic it will remain.
“We’re hopeful this rule will remain in place given the clear bipartisan support for addressing medical debt and overall discontent with the status quo,” Sesso said. “Polling from Tulchin Research has found that 81% of respondents agree, ‘medical debt is different from other types of debt that people choose to take on because no one chooses to have an unexpected illness or injury.’”
