Most medical debt will not appear on your credit report if it’s been paid off

By Ramishah Maruf and Tami Luhby, CNN

Three of the country’s largest credit reporting agencies are removing nearly 70% of medical debt from consumer credit reports, the companies announced in a joint statement Friday.

Starting July 1, Equifax, Experian and TransUnion will no longer include medical debt that went to collections on consumer credit reports once it has been paid off. That will eliminate billions of dollars of debt on consumer records.

In addition, unpaid medical collection debt won’t appear on credit reports for the first year, whereas the previous grace period was six months, the three companies said. That will give people more time to work with their health insurers or providers to address the bills.

And starting in the first half of 2023, medical collection debt of less than $500 will no longer be included on credit reports.

Medical debt placed on credit reports can make it harder for consumers to gain access to credit or secure employment and housing, the Consumer Financial Protection Bureau said in a report released earlier this month. It can also increase their risk of bankruptcy and prompt them to avoid future medicare care.

Even after the bills are paid, the debt can linger on credit reports for up to seven years.

The three firms said they made the move after months of research.

“Medical collections debt often arises from unforeseen medical circumstances. These changes are another step we’re taking together to help people across the United States focus on their financial and personal well-being,” the companies said in a joint statement.

The announcement follows research from the CFPB that shows that Americans had racked up $88 billion in medical debt on consumer credit records as of June 2021. It’s the most common debt collection on credit records, the bureau said.

Medical debt can be volatile and unpredictable, and can negatively affect many financially secure consumers. Black, Hispanic, young and low-income consumers are most likely to be impacted by medical debt, the bureau said.

Concerns about medical debt have grown since the Covid-19 pandemic hospitalized millions of people, and CFPB Director Rohit Chopra has been publicly critical of medical debt collections by credit reporting agencies. On March 1, Chopra said the CFPB will be “closely scrutinizing” the Big Three credit reporting agencies.

“We expect them to take seriously their role as major actors in the credit reporting system — a system whose integrity and accuracy can determine the financial futures of hundreds of millions of people,” Chopra said.

Advocates at the National Consumer Law Center cheered the move, though they warned that it will not help the most vulnerable patients whose serious illnesses or accidents have led to large medical bills.

“We are thrilled that the credit bureaus are removing the vast majority of medical debt from credit reports,” Chi Chi Wu, staff attorney at the center, said in a statement. “Medical debt has damaged the credit reports of tens of millions of consumers for far too long.”

Nearly 1 in 10 Americans have medical debt

Although more than 90% of the nation has health insurance, medical debt remains a major problem for millions of Americans, according to a recently released Kaiser Family Foundation analysis of US Census Bureau data. That’s because many people with insurance still face high deductibles and out-of-pocket expenses.

“A serious injury or illness can cost thousands of dollars out-of-pocket to meet these deductibles and other cost-sharing requirements,” the analysis’ authors wrote. “For people with a chronic illness, even smaller copays and other cost-sharing expenses can accumulate to unaffordable amounts.”

Roughly 23 million people, or 9% of adults, owed more than $250 in health-related charges, which Kaiser describes as significant debt, as of December 2019.

About 1% of all adults owed more than $10,000, Kaiser found. This group accounts for the vast majority of all medical debt owed.

Americans ages 35 to 64 comprised the highest share of those reporting at least $250 in medical debt. Senior citizens, who are eligible for Medicare, have the lowest rate.

Black Americans are far more likely to have significant medical debt, with 16% reporting that they owe at least $250, compared to 9% of White and Hispanic Americans and 4% of Asian Americans.

Some 11% of women reported having medical debt, compared to 8% of men. Some of the difference is likely related to childbirth costs and women’s lower average income, Kaiser said.

Americans living in rural areas, the South and the states that did not expand Medicaid to low-income adults were more likely to have significant medical debt.

The Census Bureau data suggests that Americans owed at least $195 billion in medical debt as of 2019, Kaiser found. The figure is much higher than the CFPB because credit reporting companies can’t see all medical debt and not all adults have credit reports.

Editor’s note: This article was updated to clarify that the credit reporting companies are removing medical debt that’s been paid off from reports starting July 1.

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