Los Angeles Times (Sunday)

Medical debt is being wiped from many credit reports

Millions have seen scores rise, making it easier to get a job, buy a car and rent a home.

- By Noam N. Levey

The share of American consumers with medical debt on their credit reports has declined dramatical­ly over the last year as major credit rating agencies removed small unpaid bills and debts that were less than a year old, according to a new analysis from the nonprofit Urban Institute.

At the same time, millions of Americans have seen higher credit scores, making it easier for many to get a job, rent a home or get a car.

“This is a very significan­t change,” said Breno Braga, an economist at the Urban Institute and a co-author of the study. “It affects a lot of people.”

The analysis found that, as of August, just 5% of adults with a credit report had a medical debt on their report, down from almost 14% two years earlier.

Urban Institute researcher­s also found that Americans with a medical debt on their credit report in August 2022 saw their VantageSco­re credit score improve over the next year from an average of 585 to an average of 615.

That moved many consumers out of the subprime category. Subprime borrowers typically pay higher interest rates on loans and credit cards, if they can borrow at all.

Consumers’ improved scores don’t mean the medical debts have been eliminated. Hospitals, collectors and other medical providers still pursue patients for unpaid bills. And many continue to sue patients, place liens on their homes or sell their debts. But the credit reporting changes appear to be easing one of the more pernicious effects of medical debt that for years has undermined the financial security of tens of millions of patients and their families.

Credit scores depressed by medical debt, for example, can threaten people’s access to housing and fuel homelessne­ss.

In total, about 27 million people experience­d a significan­t improvemen­t in their score, the Urban Institute researcher­s estimated. VantageSco­re, which uses a slightly different methodolog­y than FICO, in January stopped using any medical debt to calculate scores.

The credit reporting changes have drawn criticism from debt collectors and some medical providers, who warn that hospitals and physicians may require upfront payments from patients before delivering care or may push more patients into credit cards and other kinds of loans.

In August, a California dermatolog­ist sued the three major consumer credit rating agencies, saying that with fewer medical debts appearing on credit reports, patients would have less of an incentive to pay their bills, costing physicians nationwide potentiall­y billions of dollars. The case is pending in federal court.

But most leading consumer and patient advocates applaud the more restrictiv­e credit reporting rules. Research by the federal Consumer Financial Protection Bureau has found that medical debt, unlike other kinds of debt, does not accurately predict a consumer’s creditwort­hiness, raising questions on how useful it is on a credit report.

In September, the Biden administra­tion announced plans to push broader changes that would eliminate all medical debts from consumers’ credit scores. Federal regulation­s to implement such a ban will be developed next year by the CFPB, federal officials said.

This would 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.

The Urban Institute researcher­s predicted that these policies would continue to improve consumer credit scores, though they warned that more systemic changes will be necessary to reduce medical debt, which burdens about 100 million people in the U.S.

“Reducing the burden of medical debt and its widerangin­g consequenc­es would likely require health insurance reforms that build on the Affordable Care Act to further protect consumers from out-of-pocket medical expenses they can’t afford,” the report concludes.

The report by the Urban Institute, which has worked with KFF Health News over the last two years to analyze medical debt data, is based on a sample of credit records from one of the three large credit rating agencies.

 ?? Rachel Woolf KFF Health News ?? KAYCE ATENCIO, who has been burdened with medical debt for most of his adult life, had been unable to rent an apartment because of poor credit scores.
Rachel Woolf KFF Health News KAYCE ATENCIO, who has been burdened with medical debt for most of his adult life, had been unable to rent an apartment because of poor credit scores.

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