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As Biden plans to ban medical debt from credit scores, advocates press for more change

This post originally appeared on StatNews.

The dramatic impact of medical debt on credit scores may soon be a thing of the past. On Thursday, the White House announced a plan outlined by the Consumer Financial Protection Bureau (CFPB) to eliminate medical debt from credit reports. The move — which follows an earlier decision from the three main credit bureaus to eliminate paid medical debt, medical debt that’s less than a year old, and medical debt balances lower than $500 from credit reports — could affect the tens of millions in the U.S. who have unpaid medical bills.

Anti-debt advocates have long highlighted the injustices of medical debt, a major cause of personal bankruptcy in the U.S. The burden of medical debt weighs on people in various financial situations: some may be uninsured, while others may be insured but have high deductibles or coinsurance policies that result in costly bills, said Patricia Kelmar, the director of health care campaigns for the U.S. at PIRG, a public interest advocacy.


“Medical debt is not really an indicator of […] bad financial behavior or financial decision-making,” said Kelmar. “The source of medical debt is something that happens to you. It’s not inappropriate decision making or spending above your budget — this is a cancer diagnosis, a car accident.”

With that in mind, advocates say they support the CFPB plan — and encourage lawmakers to take more measures to reduce the impact of medical debt on Americans’ lives. Among them:

Stop extraordinary collection actions

Removing medical debt from credit reports is an important step, experts on medical debt told STAT, but it doesn’t stop people from getting into financial trouble in an effort to pay health care bills. It’s common for people dealing with insistent agency collection calls to get into credit card debt, sell their car, or make other sacrifices that push them further into financial precarity, said Allison Sesso, the president and CEO of RIP Medical Debt, an organization focused on eliminating medical debt.


Research shows that patients want to pay their medical debt, but they need conditions that will allow them to do so without long-term detrimental impacts on their lives. One solution, according to advocates, would be to ban the use of collection agencies by hospitals, or impose a minimum waiting period before bills are referred to them.

Ensure not-for-profit hospitals provide financial support

A large portion of medical debt comes from hospital care, and a majority of hospitals are not-for-profit institutions. In exchange for their tax exemptions, these hospitals are supposed to screen patients who might be in need of financial aid and help them get it if necessary, though they often don’t abide by this obligation.

“The amount of effort and time that many nonprofit hospitals put in helping patients access their financial assistance programs or screen them for Medicaid or Medicare is very minimal,” said Kelmar. “And they spend more time really just trying to get the patient to pay the bill than to help them access these programs.”

Stronger IRS scrutiny, advocates say, would help many patients avoid receiving hefty bills when they should be eligible for financial aid. “The evidence is clear that the IRS needs to establish firmer protections for people who are accessing care at nonprofit hospital systems,” said Emily Stewart, the executive director of Community Catalyst, a national health equity advocacy.

Ban medical credit cards 

Medical credit cards — deferred-interest credit cards offered in medical offices and hospitals at the time of service in order to pay medical bills — are often a gateway to even more significant debt, according to Stewart. Though these cards offer zero-interest plans for people who can keep up with the payments, and could potentially be advantageous to them, more than a third of customers who use them incur interest, paying, on average, an additional 23%, found a CFPB report.

Patients who are dealing with medical challenges, particularly ones complex enough to drive up high bills, are hardly in a position to make financial choices as detailed as signing up for a new card and understanding compound interests, Stewart said, and should not be offered such options.

Another issue, according to Kelmar, is that paying for services with a medical credit card changes the nature of the debt. “You are not owing your provider anymore, you are owing your credit card company, the bank — and so now it becomes consumer credit debt and not medical debt,” said Kelmar. Furthermore, she said, disputing bills becomes much harder once they have been paid.

To that end, Kelmar said that patients need to be educated to avoid making large medical payments with credit cards or taking out second mortgages or loans, as that debt will have an impact on their credit.

Prohibit denial of care due to debt

Some hospitals provide care to their patients irrespective of their unpaid bills, but not all do, justifying the policy as necessary to remain financially healthy and continue providing services to their patients. This should not be allowed, said Sesso: “No hospital should not be able to deny people care if they have a debt.”

Eliminate medical debt

Ultimately, the most important action to take on medical debt is to get rid of it, said Sesso. “We fundamentally need to get ahead of the creation of medical debt and make sure that people are well-insured, which they are not today,” she said.

With ballooning costs of health care, high deductibles are on the rise — even though people don’t always have the financial cushion to pay them. “We know that many Americans don’t have $500 in savings, [yet] many Americans have health insurance plans that require them to pay thousands of dollars out of pocket. Those things don’t add up,” Sesso said.

The reason people don’t have good insurance is that the premiums are too high, she said. The solution: bigger and better public subsidies to make premiums affordable and ensure that people are covered irrespective of their employment status, as well as stronger insurance policies that don’t leave people underinsured or stuck with high deductibles.

This post originally appeared on StatNews.