Mainstream news coverage doesn’t tell the whole story. The reality: This new move might not help the people who really need it.
The headline on Monday’s CNN story was “Credit reporting agencies will wipe out most medical debt.” On CNBC, it was “Most medical debt will be wiped from consumer credit reports.” But neither these stories nor many others provided too much detail on a major change from the three major credit bureaus whose reports decide your credit score.
As those media outlets reported, the three major credit bureaus will “remove nearly 70% of medical collection debt accounts from consumer credit reports.”
The bureaus – Equifax, Experian, and TransUnion – compile detailed credit reports on every American who’s ever asked for a line of credit, whether that’s a credit card, a student loan, or a mortgage. On Friday, they released a joint statement saying they’d exclude medical debt.
“Medical collections debt often arises from unforeseen medical circumstances,” the three bureaus wrote in a statement. “These changes are another step we’re taking together to help people across the United States focus on their financial and personal wellbeing.”
Starting this July, medical debt that has been paid off will no longer appear on credit reports. Previously, even paid medical debt could stay on a report for seven years. The rule was that medical debt showed up on your report after it went unpaid for six months – that’s now been extended to a full year. And the credit bureaus will no longer report any medical debt under $500.
This move will definitely help a lot of people. According to Debt.com’s research, 20 percent of Americans have less than $500 in medical debt. None of them will have that debt on their credit report, giving them more financial freedom.
But the people who need the most help owe way more than a few hundred dollars. While the average medical debt is under $500, 57 percent of Americans owe over $1,000.
The new policies might help people who have low debt or have managed to pay off their debt – but what about the Americans who owe thousands of dollars because of surprise medical bills, emergency treatments, or expensive tests and medicine?
Overdue medical debt disproportionately hurts minorities. The Consumer Financial Protection Burea (CFPB) found that Black and Hispanic people were more likely to have medical debt as well as young adults and low-income individuals. Workers with low wages are also less likely to have health insurance, making them even more vulnerable to unaffordable medical bills.
“I am low-income and even such a low debt is extremely crippling to me,” said one anonymous person in the CFPB’s research.
Debt alone can be debilitating, even more so when it’s combined with bad credit – blocking access to things like loans and housing. The new rules are a good step forward and will help many. But they won’t be a large enough lifeline for the Americans who are drowning in debt and can’t afford to pay it off.
“When it comes to medical bills, Americans are often caught in a doom loop between their medical provider and insurance company,” CFPB Director Rohit Chopra said. “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.”
Published by Debt.com, LLC