Late last week Senators Jeff Merkley (D-OR), Dick Durbin (D-IL), Richard Blumenthal (D-CT), Bob Menendez (D-NJ), and Chuck Schumer (D-NY) introduced the Medical Debt Relief Act. The legislation would prevent medical debt from damage consumers’ credit scores after it has been paid off or settled.
They argue that, as opposed to credit card debt or loans that consumers take on willingly, medical debt is often the result of unexpected accident or illness that is outside the consumer’s control. Additionally, due to complex medical billing systems and the potential for misunderstandings with health insurance companies, medical bills are often sent to collections before it is clear whether it is the consumer or the insurer who owes money to the health care provider.
The Senators cite that the CFPB has found that 43 million American consumers have overdue medical debt on their credit reports, and that 15 million have only medical debt on their credit reports. Many consumers mistakenly believe that unpaid medical bills have no influence over one’s credit score. However, once a debt is assigned to collections, even if the cause was an inefficient healthcare billing system, the account will be considered a derogatory account by credit scoring algorithms.
In 2015, the New York Attorney General reached a major settlement with the three national credit reporting agencies—Experian, Equifax and Transunion—in which the agencies agreed to institute a 180-day waiting period before medical debt will be reported on a consumer’s credit report and to remove all medical debts from a consumer’s credit report if and when the debt is paid by an insurance company. However, the settlement does not include relief for responsible consumers who pay off their debts themselves, as opposed to having them paid by an insurance company.
Due to the atypical nature of medical debt, the predictive value of medical accounts on credit reports is low. Credit reporting companies have testified before Congress that removing medical debt from consideration would not harm the predictive value of consumer credit reports.
The Medical Debt Relief Act would make permanent the consumer protections instituted by the credit reporting agencies following the 2015 settlement. In addition, it would ensure that medical debt that is paid off or settled by a consumer is promptly removed from a credit report rather than haunting their credit score for years after.
The Medical Debt Relief Act has also been introduced in the U.S. House of Representatives by Rep. John Carney (D-DE), along with a bipartisan group of cosponsors. The legislation is endorsed by more than 50 leading national organizations, including medical and patient advocacy organizations, consumer advocates and business organizations representing homebuilding and mortgage lending.