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Medical Debt and Your Credit Score
The FLATINING Podcast Recap Episode #65
Ron and Matthew discuss the Biden administration’s move to address the problem of medical debt and its effects on personal credit scores. Medical debt effects about 100 million people in the U.S. to the tune of around $140 billion.
The Biden administration’s Consumer Federal Protection Bureau (CFPB) a government agency created after the 2008 housing crisis, is drafting regulations to prohibit those holding medical debt, such as hospitals, medical providers etc., from reporting individual’s medical debt to credit agencies. The intended outcome is to counteract the negative impact of medical debt on individual’s credit scores. A bad credit score can inhibit the ability for people to get and secure loans or leases and can lead to problems with employment or even homelessness.
In this episode we hear from NPR and Kaiser Family Foundation (KFF) news, who have been following the medical debt story, and they explain that the expected regulations will do two main things, restrict providers from reporting medical debt to credit agencies, and prohibit them from threatening former patients that they will report their debt to these agencies. The regulations don’t prohibit hospitals or providers to use other tactics to collect from debtors.
According to KFF, there is some pushback from the collections industry warning that there may be unforeseen consequences, such as providers requiring payment up front. KFF also indicated there is a couple of cases coming up to the Supreme Court regarding the CFPB that could affect that agency directly. The CFPB reported that the new regulations would not be in affect until next year.
Ron explained that medical debt is a sensitive topic with providers because it is at the crossroads of patient care and running a business. He points out that when a provider doesn’t get paid for their services, that is a loss in revenue that must be made up somewhere else. But Ron said doctors don’t like to put patients in this position.
The idea of safeguarding patients from the impacts of medical debt is not new, Matthew brought up that some states, like New York, already prohibit medical debt from impacting the ability to get a home loan. He then pointed out that this is the first federal effort to address this issue.
The medical debt problem is not the student loan debt problem Ron said. They are two different things, both in scale and scope. Also, this initiative on medical debt doesn’t relieve the debt, it only effects the reporting of debt, something Matthew pointed out some of the credit agencies already stop considering about a year ago.
Medical debt is typically held by people in tough financial situations. Ron explained that given the way our current healthcare system is structured, there will always be some debt. That’s not critique on the system, he said, just the reality. Ron pointed out that the only way to eliminate medical debt is some kind of universal coverage, but that comes with its own problems.
Ron and Matthew wrap up by putting the medical debt problem in perspective using the student loan debt as a benchmark. The medical debt in the U.S. totals about $140 billion, with about half of the 100 million debt holders owing less than $5 thousand dollars. The student load debt by comparison is $1.5 trillion dollars across 45 million people with half of them owing over $20 thousand dollars each.
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