With an estimated $88 billion in medical debt clogging up Americans’ credit reports and medical debt a top source of consumer complaints to the Consumer Financial Protection Bureau (CFPB), any relief should be welcome news to millions of Americans.
A proposed CFPB policy could provide just that: relief from credit dings due to unpaid medical bills. In September, the CFPB announced that it is exploring new rules that would remove medical debt from credit reports altogether by prohibiting credit reporting companies from reporting unpaid medical bills and related collections.
Now, new research sheds light on just how Americans feel about this proposal.
In a survey of 1,000 American adults conducted by Tebra, a medical practice management company, 25% of respondents reported that they’d had unpaid medical bills show up on their credit reports. Of those, 91% reported having experienced financial setbacks as a result.
A poor credit rating can make it harder to access standard sources of credit, such as credit cards or bank loans. Borrowing money costs more for people with lower credit scores. Access to jobs and housing can be stymied for people with less than stellar credit.
According to The Motley Fool Ascent, 16% have credit scores less than 600, sometimes called subprime. Even people with scores of less than 700 (another 12%) are considered nonprime and can also face challenges. One study showed that one-quarter of Americans with medical debt had a credit disruption that sunk them into that category.
In the Tebra survey, only 32% of respondents were aware of the new proposed rule that would end the practice of reporting medical debt on credit reports. Among those who learned of the policy, 78% said they support it.
The survey showed that a majority (57%) of Americans have had a medical bill they couldn’t pay on time, leading to a balance which could be sent to collections. Nearly 40% reported having difficulties paying off medical debt in the past five years.
Most respondents (62%) said they think removing medical debt from their credit reports will improve both their mental and financial health.
Prior research has shown just how much healthcare costs and medical debt weigh on Americans. One recent study showed that 59% of Americans are worried about their ability to pay medical bills in the coming year and nearly half of respondents with medical debt said that their health or well-being has suffered as a result of challenges paying for medical care.
Though estimates vary, as much as half the U.S. population reportedly carries medical debt. A similar proportion report facing difficulties affording medical bills.
In 2021, 43 million Americans had unpaid medical bills on their credit reports, according to the CFPB. Since then, consumers have gotten some relief from damage to their credit due to unpaid medical expenses.
In 2022, the three major credit reporting companies removed paid medical debts and medical debts less than a year old. This year, they followed up by removing medical debts less than $500. With the removal of these smaller debts, CFPB estimates that about half of Americans with medical debt on their credit reports will have it wiped from their credit history.
According to the Urban Institute, these reporting changes have already improved the credit reporting picture for many Americans. In August 2022, just after the first reporting changes went into effect, Urban Institute analysis showed that 11.6% of Americans had medical debt in collections on their credit reports. A year later, that figure had dropped to 5%. In the same time period, the average credit score for consumers with medical debt in collections increased from 585 to 615. The Urban Institute also estimates that 15 million consumers may have had all of their medical debt in collections wiped off their credit reports as a result of the reporting changes,
Despite this progress, the CFPB may go further. Their proposal would prohibit creditors from factoring medical debt into credit applications and prevent debt collectors from using coercive collection practices.