100 Million People in America Have Health Care Debt but with Recent Changes Medical Debt Is Disappearing from Americans’ Credit Reports and Lifting Scores
Some good news! The share of American consumers with medical debt on their credit reports has plummeted over the past year. According to a recent analysis from the nonprofit Urban Institute, major credit rating agencies have been removing small unpaid bills and debts that are less than a year old. And the best part? This decline in medical debt has led to millions of Americans seeing their credit scores improve.
So, what does this mean for everyday life? Well, now it could be easier for many lower-income people to get a job, rent an apartment, or even get a car. As of August, only 5% of adults with a credit report had medical debt on their record, down from a staggering 14% just two years ago. That’s a significant drop, folks. The access we will have because of this change is dramatic.
But let’s not get ahead of ourselves. The removal of medical debt from credit reports doesn’t mean that the debts have magically disappeared. We know that hospitals, collectors, and other medical providers are still pursuing patients for unpaid bills. Lawsuits, liens on homes, and debt sales are unfortunately still happening. However (can I say #However?), the credit reporting changes have at least mitigated one of the more harmful effects of medical debt that has plagued millions of patients and their families for years.
One of the biggest impacts of medical debt is the depression of credit scores. When credit scores are low, it becomes difficult for people to access housing, which can ultimately lead to homelessness. But thanks to the credit reporting changes, approximately 27 million people have experienced a significant improvement in their credit score. That’s huge.
It’s worth noting that VantageScore, which uses a slightly different methodology than FICO, stopped using medical debt to calculate scores earlier this year. This change has drawn criticism from debt collectors and some medical providers, who argue that it may lead to upfront payments or push more patients into credit cards and loans. However, most consumer and patient advocates support the more restrictive credit reporting rules.
It’s no secret that medical debt has been a burden for many Americans in recent years. More than half of U.S. adults report going into debt due to medical or dental bills, with a quarter of them owing over $5,000. Shockingly, one in five individuals with any amount of medical debt don’t expect to ever pay it off. These statistics are alarming and highlight the urgent need for change.
The Biden administration has also recognized the issue and announced plans to push for broader changes. Their goal is to eliminate all medical debts from consumers’ credit scores. Federal regulations to implement this ban will be developed by the Consumer Financial Protection Bureau (CFPB) next year. This is a step in the right direction and builds upon state efforts, such as Colorado’s trailblazing bill that prohibits medical debt from being included on credit reports.
The Urban Institute researchers predict that the policies aimed at reducing medical debt will continue to improve consumer credit scores. However, they caution that more systemic changes are necessary to truly alleviate the burden of medical debt. This burden affects approximately 100 million people in the U.S., leading to families cutting spending on essential items and many being driven into bankruptcy or homelessness.
So, to summarize this, the decline of medical debt on credit reports is undoubtedly a win for American consumers. It’s a step towards financial security and improved access to opportunities that were once out of reach. But we can’t stop here. Health insurance reforms that build on the Affordable Care Act are needed to protect consumers from overwhelming medical expenses. Together, we can work towards reducing the burden of medical debt and ensuring a healthier financial future for all. #LetsGo