
“While in the hospital I was [racking] my brain on how in the world I could bring in some money and pay our incoming medical bills while staying home with a medically complex child.”
That’s how Mallory Rose described the first few weeks with her newborn daughter, who was eventually, after multiple hospitalizations, diagnosed with a serious infection known as staph scalded skin syndrome. Speaking to People, Rose admitted she turned to TikTok to post a video of her holding her daughter in the hospital, with the hope that the video could be monetized to make a dent in her six-week-old’s $31,000 medical bills.
Her monetization idea didn’t work, thanks to TikTok’s ever-shifting rules for making money on accounts, but Rose’s video reached a lot of well-wishers and thousands of viewers with similar stories of sky-high medical bills.
Such bills can dramatically impact a family’s credit ranking, which can have serious knock-on effects for their housing stability and general financial wellbeing. About one in five American families are plagued by medical debt, which is responsible for lowering the credit scores of millions.
In early January, President Biden announced a sweeping change to strike medical debt from credit reports. As MSNBC reported, “The new rule is a win for consumers, and a small but significant step forward for fixing the backward way we think about health care in this country.”
Medical debt is fundamentally different from the other kinds of debt on credit reports.
With President Trump taking office for the second time mere weeks after the Biden administration’s announcement, will the rule to remove medical debt from credit scores survive?
An Outgrowth of Our Broken System
According to MSNBC, “The point of credit reports is to summarize a person’s ‘creditworthiness,’ assigning them a score based on qualities such as the status and history of their credit accounts and loan repayments.” In this regard, medical debt does not belong on a credit report for multiple reasons. Many times, medical debt collection results from what are known as “surprise medical bills,” an unexpected bill due to an out-of-network provider or facility.
Surprise medical bills can arise due to complicated and frustrating healthcare experiences that are out of a patient’s hands. For example, the anesthesiologist at an in-network hospital where a patient’s surgery is conducted might be out-of-network. Or a patient may have tests done at an in-network lab, but the practitioner who reads the results is not in-network.
Medical debt is fundamentally different from the other kinds of debt on credit reports. As MSNBC wrote, “It’s not a reflection of how someone wants to spend their money, but of decisions between seeking care or potentially enduring a painful or life-threatening hardship. Medical debt is an outgrowth of our broken health insurance system, which leaves tens of millions without coverage and still costs way too much money even for people with ostensibly ‘good’ coverage.”
Medical debt is also frequently incorrect. As the Consumer Financial Protection Bureau (CFPB), the independent government agency that put forward the new rule, wrote, “Consumers frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.”
Removing medical debt from credit reports would raise the credit scores of around 15 million Americans by an average of 20 points, making it easier for them to receive loans and own homes. The rule to strike it, finalized by the CFPB on January 7, forbids medical information from being used in lending decisions, beefs up privacy protections, and restricts the power of debt collectors.
“The CFPB effectively dared the incoming Trump administration and its Republican allies in Congress to undo rules that are broadly popular and could help millions of people.”
Industry Reactions
Shortly after the rule was finalized, several industry groups had already filed two suits against it. Both complaints were filed in Texas. One, filed in the US District Court for Texas’s Southern District by ACA International, which represents debt collectors, argues that the CFPB is overreaching with this rule. As reported by CNN, “Americans are frustrated by medical bills. But frustration does not justify lawlessness,” the complaint states. It also describes the CFPB as “a federal agency with no healthcare experience.”
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Meanwhile, the Consumer Data Industry Association, representing credit bureaus such as TransUnion, Experian, and Equifax, filed their complaint in the US District Court for Texas’s Eastern District. Their complaint reads, “Consumer debt is important to underwriting, and eliminating consideration of medical debt will erode the value of consumer credit reports.”
The rule is scheduled to go into effect 60 days after publication in the Federal Register. As CNN reported, “Congress has a limited period of time when it can review and rescind final rules, which has typically happened when a new president takes office.”
Many people delay treatment and care, fearing the expense.
The timeline is tight. The rule was initially proposed in June, but according to NPR, “By finalizing the regulations now, the CFPB effectively dared the incoming Trump administration and its Republican allies in Congress to undo rules that are broadly popular and could help millions of people who are burdened by medical debt.”
The legal challenges by industry groups are believed to be a tactic to block the rule without the Trump administration being seen as the enemy. Jaret Seiberg, financial services analyst for TD Cowen Washington Research Group, who supports striking down the rule, told CNN the Texas lawsuits lessen “political risk for Team Trump and the GOP Congress as neither will be seen by voters as backing the inclusion of medical debt on credit reports.”
A Popular Rule
The rule is already extremely popular with Americans, about 14 percent of whom are saddled with medical debt. Removing that debt from credit reports would lead to about 22,000 new home mortgages approved every year, according to a press release from the White House. The press release also stated, “Under the CFPB rule, there will be zero Americans with medical debt listed on their credit reports, down from 46 million in 2020.”
That would mean a better future for families like Mallory Rose’s, who still haven’t received all the bills from the hospital following their infant’s illness.
“We are working with our insurance to ask all of the relevant coverage questions and review the itemized bills, but they just keep coming,” Rose said.
Such an avalanche of confusing and often contradictory bills is a common experience for people in the United States, so much so that many people delay treatment and care, fearing the expense. One in four adults report having trouble paying medical bills, and skipping or delaying medical care because of the costs, according to a study from KFF.
That’s unacceptable to CFPB Director Rohit Chopra, who said upon the finalization of the rule, “People who get sick shouldn’t have their financial future upended.”
For more on this topic:
Nonprofit Hospitals Pursue Aggressive Medical Debt Collection
Eliminating Healthcare Debt: A Liberatory Approach