Getting healthy is no reason for Americans’ credit to be ruined

Many Americans drowning in debt did not get there by spending irresponsibly on televisions, cars or pricey goodies. Medical bills have become the largest source of debt in collections — more than credit cards, utilities and auto loans combined. Thus, the Biden administration’s plan to keep unpaid medical bills from affecting a person’s credit score would be a life-altering change for millions.

The administration announced a major initiative in September to craft federal rules barring unpaid medical bills from affecting patients’ credit scores. If enacted, the changes could help tens of millions of people by removing information on credit reports that can make it harder to get a job, rent an apartment or secure a loan.

A third of U.S. adults have medical debt, which between 2009 and 2020 became the largest source of debt Americans owed collections agencies, totaling at least $140 billion, according to research published in 2021 by the Journal of the American Medical Association. That $140 billion doesn’t include all medical bills owed to health care providers, only the outstanding debt held by collection agencies. Some 11 million Americans have medical debt above $2,000, according to a survey by health policy research group KFF of all outstanding medical debt, including medical bills put on credit cards. Three million people have debts above $10,000. For many, it’s a financial hole that only sinks further as they confront more complex medical problems.

Medical debt is unlike any other consumer spending. Unlike buying products from retailers, health care providers usually provide little if any upfront detail of what a procedure will cost. Patients seeking treatment are often bounced between physicians, specialists, clinics and labs, without any clear menu of prices along the way. And Americans seeking emergency treatment are hardly in a position to comparison shop. In other words, this type of debt doesn’t necessarily reflect reckless spending, but the opaqueness of America’s health care system, where prices are shaped through Byzantine formulas involving insurers, their networks, discounts, copays and deductibles.

Debt included on a credit score is meant to signal a person’s monetary fitness — and, by extension, their financial trustworthiness. Low scores can limit a person’s job and housing prospects, and medical debt in particular can discourage some from seeking further health care.

Yet research shows that owing medical debt is not a reliable predictor of a person’s overall financial steadiness. Indeed, many with medical debt are merely struggling to manage their health concerns within a system that makes price-shopping virtually impossible. Not surprisingly, women shoulder a disproportionate burden of medical debt — likely related to childbirth expenses — as do Black Americans, who report carrying nearly twice the debt of white or Hispanic adults. Americans are also more likely to have significant medical debt if they live in rural areas or in one of the 10 states that have not expanded Medicaid under the Affordable Care Act, also known as Obamacare.

Removing these bills from credit reports won’t erase the debt; rather, it keeps collectors from weaponizing the information to further harm consumers who typically never sought to incur this expense in the first place. Of course, the details matter, and we’ll reserve judgment as the administration develops the rules over the coming year. But this measure is a well-intentioned response to a crisis facing millions and a welcome signal to the health care industry to make medical costs more transparent.