Lenders no longer will be able to consider unpaid medical bills as a credit history factor when they evaluate potential borrowers in the U.S. for mortgages, car loans or business loans, according to a rule the Consumer Financial Protection Bureau finalized this month.
Removing medical debts from consumer credit reports is expected to boost the credit scores of millions of families by an average of 20 points, the bureau said. The CFPB says its research showed outstanding health care claims are a poor predictor of someone's ability to repay a loan yet often are used to deny mortgage applications.
Removing medical debts from consumer credit reports is expected to boost the credit scores of millions of families, the Consumer Financial Protection Bureau said.
The three national credit reporting agencies — Experian, Equifax and TransUnion — said last year they would remove medical collections under $500 from U.S. consumer credit reports, but many consumers have debt much higher than that.
The new rule bans all outstanding medical bills from appearing on credit reports and prohibits lenders from using the information. It is set to take effect 60 days after publication in the Federal Register, though President-elect Donald Trump proposed sweeping changes and limits to the CFPB's regulatory reach.
How will this affect consumers?
The CFPB estimates the rule will remove $49 million in medical debt from the credit reports of 15 million Americans. The agency says one in five Americans have at least one medical debt collection account on their credit reports, and more than half of collection entries on credit reports are for medical debts.
The problem disproportionately affects people of color, the CFPB found: 28% of Black people and 22% of Latino people in the U.S. carry medical debt versus 17% of white people.
The CFPB says the rule will give millions of consumers increased access to loans and lead to the approval of approximately 22,000 additional mortgages a year.
The rule also was drafted to increase privacy protections and to help keep debt collectors from using the credit reporting system to coerce people into paying bills they don't owe. The CFPB found consumers frequently receive inaccurate bills or are asked to pay bills that should have been covered by insurance or financial assistance programs.
What's more, lenders will be barred from using information about medical devices, such as prosthetic limbs, to make them serve as collateral for a loan and subject to repossession, according to the CFPB's announcement.
How are advocates responding?
Nonprofits in the health care space are pleased.
"This decision is great news for everyday Americans," said Carrie Joy Grimes, founder of personal finance organization WorkMoney. "Medical debt is not a reflection of being bad with money — any one of us can experience illness or injury. With this new rule, Americans will now be able to focus less on the strain of medical debt and more on getting back on their feet."
Patricia Kelmar, health care campaigns director for the U.S. Public Interest Research Group, said the rule would help "many financially responsible families who have accumulated medical debt from unpredictable health issues, high out-of-pocket costs, insurance claim denials and billing errors."
What should you do?
Federal law requires nonprofit hospitals to lower or write off bills for individuals depending on household income. To determine if you qualify, do an internet search for the hospital or health care provider along with the phrase "charity care" or "financial assistance policy." The nonprofit organization Dollar For also provides a simplified online tool for patients.
Next, appeal under the No Surprises Act, a federal law that says insurance companies must reasonably cover any out-of-network services related to emergency and some non-emergency medical care. If you're charged more than you're used to or expect when you receive in-network services, that bill may be illegal.
Always ask for an itemized bill. Medical billing is notoriously complicated and rife with errors. An itemized bill includes the billing codes of all care received. If something is off between these codes and the care provided, contesting your bill can yield changes.
Comparing the bill with insurance companies' estimates of fair charges also can help. If the price you were charged is more than average, you may have your costs lowered. You could even take the provider to small claims court over the discrepancy, or let them know you have a case.
Finally, always compare your insurance company's "explanation of benefits" to the bill. The hospital's bill must match the explanation of costs that are covered and not covered. If it does not, you have another reason not to pay and to ask the provider to further work with your insurance company.
You can always appeal health claims with your insurance company if you believe there is a reason the bills should be covered entirely or more than the company initially decided. You may also contact your state insurance commissioner.
