According to a new analysis by the nonprofit Urban Institute, the share of medical debt on American consumers’ credit reports has dropped dramatically over the past year as major credit rating agencies removed small unpaid bills and loans less than a year old.
“This is a very important change,” said Breno Braga, an economist at the Urban Institute and co-author of the study. “It affects a lot of people.”
The analysis found that, as of August, only 5% of adults with a credit report had a medical debt on their report, down from about 14% two years earlier.
Urban Institute researchers also found that Americans who had medical debt on their credit reports in August 2022 saw their VantageScore credit scores rise from an average of 585 to an average of 615 the following year.
This has diverted many customers from the subprime segment. Subprime borrowers typically pay higher interest rates on loans and credit cards, if they can borrow at all.
An improved consumer score does not necessarily mean that medical debt has been eliminated. Hospitals, collectors and other medical providers still pursue patients for unpaid bills. And many continue to file lawsuits against patients, placing liens on their homes or selling their debts.
But the credit reporting changes appear to be mitigating one of the more damaging effects of medical debt, which has undermined the financial security of millions of patients and their families for years.
Credit scores depressed by medical debt, for example, can fuel people’s access to housing and homelessness.
In total, about 27 million people experienced a significant improvement in their scores, Urban Institute researchers estimated. VantageScore, which uses a slightly different methodology than FICO, stopped using medical loans to calculate scores in January.
The credit reporting changes have drawn criticism from debt collectors and some medical providers, who warn that hospitals and doctors may require upfront payments from patients before providing care or push more patients into credit card and other forms of debt.
In August, a California dermatologist sued three major consumer credit rating agencies, claiming that with less medical debt on credit reports, patients would have less incentive to pay their bills, potentially costing physicians nationwide billions of dollars. The case is pending in federal court.
But most leading consumer and patient advocates applaud more restrictive credit reporting rules. Other research by the federal Consumer Financial Protection Bureau found that medical debt — unlike other types of debt — doesn’t accurately predict a consumer’s creditworthiness, calling into question how useful it is on a credit report.
In September, the Biden administration announced plans to push sweeping changes that would remove all medical debt from consumers’ credit scores. The CFPB will draft federal regulations next year to implement such restrictions, federal officials said.
This will expand current state efforts. In June, Colorado enacted a trailblazing bill that prohibits medical debt from being included on residents’ credit reports or factored into their credit scores. A similar measure was passed by the New York State Legislature this year and is pending before the governor.
Researchers at the Urban Institute predicted that these policies would continue to improve consumer credit scores, though they cautioned that more systemic changes would be needed to reduce medical debt, which affects nearly 100 million people in the United States.
“Reducing the burden of medical debt and its broader consequences will likely require health insurance reform that builds on the Affordable Care Act to further protect consumers from out-of-pocket medical costs they cannot afford,” the report concludes.
The Urban Institute report, which worked with KFF Health News over the past two years to analyze medical debt data, is based on a sample of credit records from one of the three major credit rating agencies.
About this project
“Diagnosis: Debt” is a reporting partnership between KFF Health News and NPR that explores the scale, impact and causes of medical debt in America.
The series draws on KFF’s original polling, court records, federal data on hospital finances, contracts obtained through public records requests, data from international health systems and a yearlong investigation of the financial support and collection policies of more than 500 hospitals across the country. .
Additional research was conducted by the Urban Institute, which analyzed credit bureau and other demographic data for KFF Health News to explore where medical debt is concentrated in the U.S. and what factors are associated with high debt levels.
The JPMorgan Chase Institute analyzed records from a sample of Chase credit card holders to determine whether customers’ balances could be affected by major medical expenses. And the CED Project, a Denver nonprofit, worked with KFF Health News on a survey of its clients to explore the connections between medical debt and housing instability.
KFF Health News reporters worked with KFF public opinion researchers to design and analyze the “KFF Health Care Debt Survey.” The survey was conducted in February. From March 25 to 20, 2022, online and by phone, in English and Spanish, among a nationally representative sample of 2,375 US adults, including 1,292 adults with current health care debt and 382 adults who had health care debt in the past five years. The margin of sampling error is plus or minus 3 percentage points for the full sample and 3 percentage points for those with current debt. For results based on subgroups, the margin of sampling error may be higher.
Reporters from KFF Health News and NPR also conducted hundreds of interviews with patients across the country; spoke to physicians, health industry leaders, consumer advocates, debt lawyers and researchers; and reviewed scores of studies and surveys about medical debt.
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