Big changes for medical debt credit reporting - who wins and loses? (Part 2)

Welcome back to this week's newsletter. As a result of the CFPB's big news on medical debt reporting this past week, we're doing what we love to do here, which is continue a previous series that we started in the past. This time, it's revisiting our review of the initial outline of this now-proposed rule. I'll just bring in the following statistics we shared on the topic of medical debt from the previous post, namely from a Washington Post investigation conducted last year:

• Around 100 million Americans are in Medical debt
• Over 15% of adults in the US report past-due medical debt - as there are 333 million adults, this comes out to around 50 million people.
• 26.4 percent of Americans who are under the federal poverty level are overdue on a medical bill - overall, 15.4 percent of respondents were past due.
• 25.9 percent of Black Americans and 19.1 percent of Hispanic Americans were past due, compared to 12.8 percent White Americans.
• Almost 75% owe some or all of their medical debt to hospitals specifically.
• 72 percent of adults with medical debt owe because of a one-time incident (i.e. a visit to the ER).
• Beyond this, approximately 66.5% of bankruptcies in the US are caused by medical debt (around 530,000 cases a year) (from the USA Today).

Yesterday the CFPB formally proposed its rule to remove medical bills and debt from most consumers' credit reports. Earlier this year, the Bureau released an outline of their proposed direction on this matter, and what was released yesterday is the full detail of the rule which clocks in at 182 pages. We'll cover the rule in depth next week, but this week it would be helpful to hear the different takes on why this is a good thing or why it's problematic.

Let's start off with those who are not in favor of this change. Several perspectives were shared with ACA International , the Association of Credit and Collections professionals.

• CEO of the group Scott Purcell stated "The CFPB’s proposal will have a broad negative impact on businesses, health care providers, patients and consumers because by suppressing information about a consumer’s debt, this will increase the cost of medical care and force more upfront payments. The rule, if finalized, would fundamentally alter the U.S. credit-based economy as it is today in terms of reduced consequences for not paying your bills, which in turn will reduce access to credit and health care for those that need it most.”
• Leah Dempsey, shareholder at Brownstein Hyatt Farber Schreck LLP: “In its proposal, the CFPB attempts to rewrite the Fair Credit Reporting Act, which is an impermissible overreach since lawmaking is the job of Congress,” Dempsey said. “The bureau is also blatantly ignoring, in an arbitrary and capricious way, an abundance of evidence provided to it by a variety of financial service providers that medical debt is predictive and needed information for lenders to understand a consumer’s ability to repay.”
• Dr. Andrew Nigrinis, Ph.D., who formerly worked as an enforcement economist at the CFPB: “From a provider perspective, the CFPB is irresponsibly proposing to regulate a significant portion of the health care industry’s revenue without a meaningful analysis of the effects on consumers, industry, health practitioners and patients,” Nigrinis said. “It is a basic tenet of economics that one person’s debt represents another person’s income. This will affect the income of medical providers, and the CFPB has not bothered to quantify this real cost. From a credit granting perspective, the CFPB, by reducing the information value of credit reports and removing predictive medical debt tradelines, is contradicting its policy to require lenders to conduct an Ability to Repay analysis. Essentially, this rule is an information tax on responsible borrowers.”

Some additional voices not in favor of this change:

• From an ABC article : “Ge Bai, a professor who studies accounting health policy at Johns Hopkins University, predicted that hospitals will have to make up for that loss in other ways. More stringent payment efforts, like requiring payment before patients receive medical care, could leave low-income patients worse off. ‘I think in the short run, it will be great news for patients, and probably we’ll see patient advocacy groups pushing it. However, I think in the long-run, when the long-term negative effects emerge, probably we’re going to see more pushback,’” Bai said."
• Congressman Patrick McHenry (R-NC) who is the House Financial Services Committee Chair: “Director Chopra is once again acting as a political arm of the White House, rather than as an independent regulator. This proposed rule will severely impair the accuracy and completeness of credit reports—raising the cost and reducing the availability of credit for all Americans. The CFPB pursuing a full prohibition of medical debt on credit reports will have a negative impact on our credit and health care systems.?It is badly misguided to remove consequences for consumers who do not pay a debt by?wiping out?an entire category of debt from credit reports. The CFPB’s regulatory overreach will harm the very consumers the agency was created to protect.”
• WSJ Reader James Petkas: "Everyone should read Alexander Fraser Tytler, the 18th century Scottish professor. He states that Democracies have a limited shelf life. They self destruct when the electorate realizes that they can vote themselves ever greater largesse from the public treasury. The public always then votes for the candidate who promises the most benefits causing the economic destruction of the democratic nation. It would appear that we are reaching that point."
• WSJ Reader Alan Stewart: "Taking what does not belong to you without paying is theft, pure and simple."

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Now, some voices in favor of this change:

• Allison Sesso, CEO of NGO/Nonprofit Undue Medical Debt said in a statement: "Access to necessary healthcare should have zero impact on creditworthiness...this is a huge achievement for the millions struggling...we have to be mindful of other harms related to medical debt, like the associated mental health burden which increases feelings of anxiety and/or depression or individuals who delay or skip necessary healthcare because of persisting fears around cost."
• From a 2022 AP Article on Credit Bureaus initially making the decision to remove some medical debt: "“These aren’t people who bought shoes they couldn’t afford,” said Amanda Dunker, of the nonprofit Community Service Society of New York. “They went to a doctor because they were sick or needed help with an injury.”"
• Leona Lee, commenter on the original outline: "Hello, I've lived in Cook County, IL for over 40 years. I've always had insurance, and lately also Medicare & Medicaid- yet still, there have been several times where I suddenly got a letter from a collections agency or it showed up on my credit report, that I suddenly owe a co-pay for a test or surgery. I've had sudden collection demands for $400, a co-pay from Advocate Christ Hospital for spinal surgery in 2008. Also: several hundred from an X-ray co-pay I did not even know existed, at Illinois Masonic Hospital in Lakeview. And, $1000 for Occupational Therapy when I had to get a finger amputated in 2020. I have gone to & called the hospital's financial offices, where I was told I HAD to make payments. I am disabled & get SSDI, so I have no wages to garnish. I'm disabled, on a fixed income, and cannot work, yet I was told I HAD to make payments, in one case I paid off half & they STILL sent it to collections! This is ridiculous. I need dental work, and I need both knees replaced- but I have put things off because I am afraid of medical bills, afraid of anything else going to collections, and I will not be able to find my next apt because these things are on my credit report history!"
• Hala Ayala, former VA Lt. Gubernatorial Candidate: "The weight of medical debt for my son’s lifesaving treatment stayed heavy on my shoulders. It cast shadows on my credit, job opportunities, and housing situation. Medicaid did come later, but the scars of medical debt lingered for a decade plus on my credit report. I don’t know about you, but this is a BFD!"
• Reddit user #1: "Literally every health care provider requires your SSN so they can destroy your credit if you do not pay. Moreover they are evasive if you ask them up front how much the care will cost. (In other countries they have to tell you - it’s the law.) That is a recipe for high health care costs and financial stress. So I am hopeful that this measure (if it survives court challenges) will lower health care spending and save many folks from involuntary bankruptcy."
• A banker on X: "As someone who looks at credit reports for a living for 30 yrs I can’t tell you how many errors & bs gets out on credit reports by medical. So many medical bills are wrong (insurance issues) & and $200 collection can ruin credit."
• From an NPR story on medical debt : "Jeni Rae Peters' budget has always been tight. But Peters, a single mom and mental health counselor, has worked to provide opportunities for her children, including two girls she adopted and a succession of foster children. One of her daughters had been homeless. Then two years ago, Peters was diagnosed with stage 2 breast cancer. Multiple surgeries, radiation, and chemotherapy controlled the disease. But, despite having insurance, Peters was left with more than $30,000 of debt and mounting threats from bill collectors. One collection call came as Peters was lying in the recovery room after her double mastectomy. "I was kind of delirious, and I thought it was my kids," she said. "It was someone asking me to pay a medical bill." Through the surgeries and treatments, Peters kept working so she would not lose her insurance. She took on extra work to pay some of the bills. Five days a week, she works back-to-back shifts at both a mental health crisis center and a clinic where she counsels teenagers, some of whom are suicidal. Last year, three friends on the East Coast paid off some of the debt. But Peters' credit score has tumbled below 600. And she worries constantly about how she will provide for her children."

A view of someone on the fence:

• Reddit user #2: "So this one I’m divided on: 1) Medical debt unlike all other forms of debt is involuntary. You cannot control when you get sick, and you aren’t going to go out of your way to take out more. I can decide whether to buy a car I can’t afford, but I can’t decide to not pay for a cancer treatment. If we can’t control whether we have this debt or not then it should not reflect our credit worthiness on our credit report.?2) If medical debt is not reported to my personal credit report, then what is my incentive to pay for it? Out of the goodness of my heart? All this would do is drive up health care costs further as many people logically decide “yeah I’m not gonna pay that”. I know I would."

My view, in closing:

Read these stories. In some cases, we're talking a few small copays of less than $100 that were forgotten or not paid correctly, then got sent to collections, have interest and late fees tacked on by collections agencies, and end up becoming thousand dollar bills that then impact people's credit scores. In other cases, we're talking about medical issues that are no fault of anyone's which leave huge bills for the treatment.

So let's take it back to credit reporting for a second. As the naysayers say, removing the tradelines won't remove the debt and impacts the person's ability to pay. Let's follow that train of thought. How is medical debt different from credit card debt or other kinds of debt? For one, many times it is incurred without any (and I mean any) fault of the person incurring it. Believe it or not, in most cases in the US the debt is primarily coming from insured patients .

Why doesn't the hospital just forgive that debt? Well, it's not as though hospitals are not suffering an impact either - on the contrary, some hospital systems in major cities are looking to either sell or shut down hospitals because they can no longer function with the amount of bad debt on their books.

Okay, let's kick it back to the insurance companies. They are making billions, they can afford to eat some of this - especially if most indebted are already insured - right?? Not according to an independent study conducted last year, which shows increasingly declining profit margins for even the biggest healthcare companies - a margin of only 2-4%.

So that leaves the government. Can they take $220 billion of debt? Well, they just allocated $824 billion for defense ...surely there's some space in there to help struggling Americans? Something to think about!

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