Americans Crushed by Medical Debt Might Finally a Catch Break

If your credit score has been bruised by medical debt—making it near-impossible for you to borrow money, find a good place to rent, or even get a job—relief might be on the way.

Credit-reporting giants like Equifax, Experian, and TransUnion are set to change how they report medical debt this July, the Wall Street Journal reported Friday. They plan to wipe already-paid-off medical debt that’s been sent to collection agencies, as well as stop adding new, unpaid debt until a year after it’s been lingering in collections, rather than the current six-month timeline. 

The companies’ planned measures should remove nearly 70 percent of medical debt sent to collections from credit reports, the Journal reported—a massive reprieve that could allow people stuck in poor-credit purgatory to access a better life. By the first half of next year, the three companies will additionally no longer include medical collection debt under at least $500 on credit reports, according to a press release from the agencies—which, according to Fortune, comprises the majority of bill balances.

The announcement also comes right before the federal government is set to wind down a program that reimburses health care providers for the cost of caring for uninsured patients with COVID-19. That move, which the White House said resulted from a lack of federal funding, could result in people avoiding care or taking on debt. 

“Medical collection 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 wellbeing,” the credit agencies’ CEOs said in a statement. “As an industry we remain committed to helping drive fair and affordable access to credit for all consumers.”

To back up, when people don’t pay hospitals and health care providers, those institutions can opt to turn the debt over to collection agencies, sell it to debt buyers for very cheap, or send it to a collection attorney for litigation. Those agencies and buyers can then hound people for the unpaid debts, and, critically, report the debt to credit bureaus. (Alternatively, one buyer, the nonprofit RIP Medical Debt, purchases people’s unpaid debts only to erase them.) Even after the debts have been paid, the bills can stay on a person’s credit report for up to seven years, according to the Journal. 

Health care is massively expensive, and since people of color are more likely to lack the insurance to cover it, the debt burden disproportionately falls on Black families, according to Bloomberg News. 

These days, unpaid medical bills are the largest source of debt owed to collection agencies, according to the New York Times. For an idea of how that impacts regular people, here are some GoFundMe campaigns featuring a mother with $46,000 in medical debt and no way to get approved for a credit card, another mother who can’t access a loan to pay for a necessary procedure to get her teeth extracted and replaced due to medical debt, and a person who was living in their car due to being unable to qualify for a rental over debts including medical bills. 

It’s not like the credit agencies’ decision came out of nowhere. While the companies said in a statement Friday that their call came after months of industry research, the Consumer Financial Protection Bureau released a report detailing just how damaging the bills can be to credit scores on March 1, noting the pandemic had made the situation even worse. Sometimes, the bureau said, the debt amounts aren’t even accurate, yet consumers are forced into paying the mistaken bills, anyway. 

“When it comes to medical bills, Americans are often caught in a doom loop between their medical provider and insurance company,” the bureau’s director, Rohit Chopra, said at the time. “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.”

In a tweet March 1, Chopra said the CFPB would be “closely scrutinizing the Big Three credit bureaus to see if they are following the law when it comes to inaccurate data.” 

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