Medical debt is a big burden for the middle class.
Medical debt currently exceeds credit cards, personal loans, utilities and phone bills combined.
September 20, the Biden administration announced plans to have the Consumer Finance Protection Bureau (CFPB) develop rules to bar unpaid medical bills from affecting patient's credit scores.
New rules would not take effect until next year.
Republicans have been attacking the CFPB and conservatives on the Supreme Court have been chipping away at federal regulatory powers. It is not clear the Biden administration's effort will be successful.
Hospitals and credit collection agencies immediately came out against the administration's plans. Threatening people's credit scores is the number one method to get them to pay.
Overinflated hospital costs leading to most of this outstanding debt is not being discussed.
• Healthcare related debt encompasses more than just unpaid or past due bills from providers.
Many people carry debt from medical and dental bills that they have paid off by taking on other forms of debt, including credit cards, personal bank loans, or loans from family and friends.
• The Consumer Financial Protection Bureau (CFPB) estimates that $88 billion in medical debt is reflected on Americans’ credit reports.
The total amount of medical debt is likely higher because not all medical debt is visible to consumer reporting companies.
• An analysis of 2020 Census Bureau data found 17% of households owed medical debt in 2019.
A Kaiser Family Foundation (KFF) survey found that four in ten adults have some form of healthcare debt.
♦ Uninsured adults, women, Black and Hispanic adults, parents, and those with lower incomes are especially likely to say they have healthcare related debt.
• About a third of adults with healthcare debt owe less than $1,000.
30% of the people surveyed by KFF, said they would be unable to pay a $500 unexpected medical bill without borrowing money.
30% expect they will be able to pay off their medical debt within a year, but 20% say they don’t think they will ever be able to pay off their debt.
Adults with healthcare debt report making sacrifices to pay down debt. Most report cutting back on household spending, and more than four in ten say they or a household member have used up all or most of their savings due to their healthcare debt.
Many also report more serious consequences like skipping payment on other bills, delaying college or buying a home, or changing their housing situation as a result of their debt.
• Other consequences of debt, such as being contacted by debt collectors and having their credit scores negatively affected, can lead to additional financial problems such as difficulty buying vehicles needed for work or buying or renting a home.
Some relief from debt collectors
Congress, federal agencies, and others have taken some small steps to respond to medical debt.
Congress passed the No Surprises Act to help protect Americans from certain unexpected medical bills, including surprise medical bills for emergency services from out-of-network providers.
In addition, the CFPB told debt collectors and consumer credit reporting companies that they can’t collect, tell others, or report any invalid medical debt.
♦ In April, the three major credit bureaus — Equifax, Experian and TransUnion — announced that medical collections with balances of $500 or less would no longer appear on consumer credit reports. This was to take effect on April 11, 2023.
It is estimated that this action will remove nearly 70% of medical collection debt from credit reports. According to the CFPB, when medical collection data is removed, people’s credit scores can jump significantly — 25 points, on average — in the first quarter after their last medical debt is removed from their credit report.
• If your report has a medical collection under $500, you should dispute that information with the credit bureau.
The CFPB notes that the change does not include credit card collections, even if you used your credit card to pay for a medical expense under $500.
If you try but fail to get a credit bureau to remove the medical debt from your credit report or investigate, you are more likely to get a response if you file a complaint with the CFPB at consumerfinance.gov/complaint.
You can also submit your grievance over the phone at (855) 411-2372.
• It should be understood that while credit bureau’s may not be reporting debt under $500, hospitals and other healthcare providers can still pursue collecting this small debt.
A majority of Americans say they support the government setting limits on how much patients with health insurance can be asked to pay out-of-pocket for medical care.
• Government regulation of health care is generally less popular among Republicans than Democrats.
♦ Health insurance deductibles are patients’ biggest struggle. But the government has actually encouraged high deductibles.
The Affordable Care Act allowed insurers to set deductibles significantly higher than those typically faced by Americans who get health insurance at work. This was done to keep the cost down for the entire program.
As a result, plans sold through Healthcare.gov have some very high deductibles and unreasonable maximum out-of-pock limits.
• In 2023, the average individual annual deductible for bronze plans is around $7,481, $4,890 for silver and $1,650 for gold.
Due to premium cost even with a subsidy, most people will be forced into a silver plan at best or a bronze at worst.
As if high deductibles weren’t bad enough, CMS is allowing maximum out-of-pocket limits to increase every year. This is happening even with Medicare Advantage plans.
• The maximum out-of-pocket limit for a 2023 Marketplace plan is $9,100 for an individual plan and $18,200 for a family plan. These are bankruptcy levels for many Americans.
There is a lot of public support for some form of government intervention to bring down deductibles and maximum out-of-pocket limits. But no one wants to address the trade-offs related to doing this.
Would health plan premiums have to rise or would there be pressure on healthcare providers?