Tuesday, June 11, 2024
Year : 2, Issue: 24
In a sweeping change that could improve millions of Americans’ ability to own a home or buy a car, the Biden administration will propose a rule Tuesday to ban medical debt from credit reports. The rule, which will be announced by Vice President Kamala Harris and Consumer Financial Protection Bureau Director Rohit Chopra, comes as President Joe Biden beefs up his efforts to convince Americans his administration is lowering costs, a chief concern for voters in the upcoming election.
The rule, which has been in the works since September, could go into effect sometime next year, Chopra told ABC News in an exclusive interview ahead of the policy announcement.
CFPB’s research estimates that the new rule would allow 22,000 more people to get approved for safe mortgages each year – meaning lenders could also benefit from the positive impact on peoples’ credit scores, by being able to approve more borrowers.
But 15 million Americans still have $49 billion of medical debt that is hampering their scores, the CFPB found. This rule would extend the practice to all credit reporting in the U.S.
Medical debt is extensive in the U.S. It affects two in every five Americans, according to the health policy research organization KFF, and a vast majority have debt in the thousands.
Once those debts go to collections, credit scores take a hit, which means car and home loans are harder to come by or are only offered with high interest rates – leading to a slippery slope for people who are already struggling with their bills.
The new CFPB rule also seeks to address the issue of incorrect, confusing and complicated medical bills, which often lead to long, drawn-out disputes between patients and billing departments – a complaint that the CFPB, as the agency tasked with consumer empowerment, receives in droves, Chopra said.
Experts who support the CFPB’s proposed rule also point to the already-low success rate for collecting on medical bills.
“We know empirically that the repayment rates are incredibly low for medical debt, and so it’s already the case that people aren’t really paying it down. So I don’t think this policy change is going to change the behavior that dramatically,” said Matt Notowidigdo, a professor at University of Chicago’s Booth School of Business who studies health economics.
Linda Davis, a 61-year-old resident of Grand Rapids, Michigan, has chronic obstructive pulmonary disease, a type of lung disease, and uses a power wheelchair because of a lower back injury. She said she doesn’t think she’ll ever pay off her medical bills, which she estimates to be between $45,000 and $50,000.
She said her monthly income covers rent, electricity, her cell phone bill and groceries, but that she doesn’t have room in her budget for her medical bills.
To Notowidigdo and many other health economists, addressing the root cause of America’s medical debt issue would mean enrolling more people in adequate health care coverage on the front end, “rather than dealing with unpaid medical bills from lack of insurance or not generous enough insurance on the back end,” he said.
Of course, for now, those large bills and low repayment rates are already a challenge for hospitals and health care systems.
If the CFPB rule leads to fewer people paying the bills, it could be the patients who suffer, some experts warned.
Ge Bai, a professor who studies accounting health policy at Johns Hopkins University, predicted that hospitals will have to make up for that loss in other ways. More stringent payment efforts, like requiring payment before patients receive medical care, could leave low-income patients worse off.
Industry groups, like the Association of Credit and Collection Professionals, have echoed Bai’s concerns.
“There’s too much at stake for Americans’ access to quality health care by taking actions that only negatively affect the cash flow to the health care community without finding ways to replace those funds,” ACA CEO Scott Purcell said when CFPB first announced it was looking into the policy change.
