Protecting Consumers From Medical Debts

Posted by NYPIRG on July 10, 2023 at 10:08 am

One of the last-minute deals at the end of the New York legislative session last month was approval of a bill to help protect patients from the repercussions of outstanding medical debts.  The bill, if signed into law by Governor Hochul, would prohibit credit reporting agencies, including Transunion, Experian, and Equifax, from including medical debt in consumer credit reports.

Credit reports and their accompanying credit scores have become a crucial gateway to participating in many standard economic activities. Credit scores might be checked when applying for a loan, getting a credit card, renting an apartment, or even applying for a job.

One of the biggest impediments to Americans having a healthy credit score is medical debt.  Approximately 60% of consumer debt that appears on credit reports is medical debt.  It is therefore one of the main factors that can contribute to a person’s low credit score, which can sabotage them from successfully engaging in simple wealth-building activities like applying for a job or a mortgage.

The three credit reporting agencies have already voluntarily agreed to stop reporting medical debts under $500.  However, in an effort to reduce even further the reporting of certain debt, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule inviting states to further restrict what can be reported than is required under the Fair Credit Reporting Act.  This ruling reflects the finding by federal agencies that approximately 1 in 5 Americans have some false or erroneous information on their credit report that is harming their credit score.

The New York legislation approved in June would build on the ruling issued by the CFPB to prohibit credit reporting agencies from reporting all medical debt on the credit reports of New Yorkers.  Medical debt differs from other types of consumer debt:  It is not taken on voluntarily, but accumulates due to emergencies, and therefore it is not indicative of a person’s ability to pay back their financial obligations.  Medical debt should not be taken into account when determining a person’s credit score and should not prevent a person from being able to get a job, rent an apartment, or open a bank account.

Important to note that the legislation would not absolve patients from paying their outstanding bills, just prohibit those outstanding charges from appearing on the individual’s credit report.

Of course, the whole situation is ridiculous.  Why should anyone have their finances damaged because of medical bills in the first place?

Health care is too often unaffordable for New Yorkers.  As a result, many patients suffered serious financial harm because they needed medical care.  Over 53,000 New York patients were sued by hospitals between 2015 and 2020, and thousands had liens placed on their homes or had their wages garnished.  Last year, New York recognized this problem and placed a prohibition on the placement of medical liens and wage garnishments.  These are laudable changes, but they failed to provide help to the 38 percent of New Yorkers who say they avoid necessary medical care because of costs or the 34 percent who say they have experienced serious financial harm due to medical bills (such as being unable to afford basic necessities or using up all of their savings).

Even those with coverage face uncertainties: “roughly 20 percent of people under age 65 with health insurance nonetheless reported having problems paying their medical bills over the last year. By comparison, 53 percent of people without insurance said the same.”

Health care in America is based on a system of insurance that is expensive yet fails to provide the benefits we expect.  The United States spends nearly 17 percent of its Gross National Product on health care (pre-pandemic), yet ranks 29th of the 37 Organisation for Economic Co-operation and Development (OECD) member nations in life expectancy.  It is clear that American health care is expensive and doesn’t deliver on its most basic mission: providing coverage to all those who need it. Public policy must ensure coverage for all residents. 

And while the nation continues its decades-long debates over how best to ensure universal coverage, it’s up to the states to stanch the financial bleeding.  New York has recently taken steps to protect patients from some of the worst hospitals’ aggressive bill-collecting practices, but keeping medical debt out of credit reports helps, too.  While outstanding hospital bills will still have to be paid, those charges will not further harm patients’ creditworthiness.  Illness and injury are difficult enough without having to tackle credit reports.  Governor Hochul should see it the same way.