The federal agency that enforces consumer financial protection rules is vowing to get tougher on the practice of sending medical debt—which reached $88 billion in June—to credit reports.
Medical debt is far and away the most common type of liability on credit reports. On Tuesday, Consumer Financial Protection Bureau officials questioned whether it belongs there at all. As of last year, 58% of all third-party debt collections were for medical debt, the agency determined in a new report. About 20% of U.S. households owe medical debt, which appears on 43 million credit reports, the CFPB found.
Medical debt isn’t like other forms of debt in that few people choose it and there’s little ability to shop around, CFPB Director Rohit Chopra said during a call with reporters. Navigating medical bills can feel like “full-time detective work” and patients and families often get caught up in a billing “doom loop” between their insurers and providers, he said.
“Even when a patient tries to battle to get an accurate bill or an insurance claim paid, medical collectors have a weapon that is hard to fight against: the credit report,” Chopra said. “I am concerned the credit reporting system is being weaponized as a tool of coercion to get people to pay medical bills they may not even owe.”
The CFPB will take three steps in response to its findings, Chopra said.
For starters, the agency will determine whether unpaid medical bills should even be included in credit reports. To do that, the CFPB will perform further research into medical billing, collections and credit reporting.
The agency will be “closely scrutinizing” the “big three” credit bureaus—Equifax, Experian and TransUnion—to ensure they have reasonable procedures in place to ensure medical debt recorded on credit reports is accurate, Chopra said. Those procedures must include taking action against medical debt furnishers who routinely report inaccurate information.
The CFPB will collaborate with other federal agencies to crack down on coercive credit reporting. The agency is already working with the Health and Human Services Department to ensure patients aren’t bullied into paying more than they owe, Chopra said.
The CFPB supports a recent Veterans Affairs Department policy that will require all other methods of debt collection be exhausted before veterans’ bills are reported to credit bureaus, he said. President Joe Biden will announce further aid for veterans during his State of the Union address Tuesday. According to a White House fact sheet, the VA will simplify the process for claiming medical debt forgiveness and set an income threshold for receiving debt relief.
Medical debt is reported to credit agencies out of proportion to other forms of debt, such as credit card balances, according to the CFPB report.
Moreover, medical bills sent to collections often aren’t accurate. “Attempts to collect debt not owed” was the most common complaint the CFPB received between 2018 and 2021, according to the report. One woman, for example, said she was sued by a debt collector for a medical bill her insurer had already paid.
There’s a lot of uncertainty in the medical billing process that leads to those inaccuracies, said April Kuehnhoff, a staff attorney with the National Consumer Law Center. People don’t know how much they’re going to be billed for services, and uninsured patients are charged different rates than those with insurance. Then there’s the question of whether patients are eligible for financial assistance and, if they are, whether they’re informed about it, she said.
“There’s lots of questions about what is the right amount when you’re dealing with medical debt, and some of that gets carried over to the billing or the debt collection space,” Kuehnhoff said. “There’s lots of reasons the amount you may be billed for a medical debt may be incorrect.”
Medical debt doesn’t belong on credit reports, said Mark Rukavina, a program director overseeing Community Catalyst’s Community Benefit and Economic Stability Project. “We don’t think it’s fair for a variety of reasons,” he said.
Not-for-profit hospitals are required to offer free or discounted care to low-income patients, but the CFPB found that they often don’t notify patients about those programs or make it easy to apply. Washington state Attorney General Bob Ferguson (D) is suing 14 hospitals owned by Renton-based Providence, alleging they trained employees to aggressively collect payment without regard for patients’ eligibility for financial assistance and failed to notify patients who qualified for help.
“We are interested in what more government can do to make sure patients exercise their rights to access financial assistance programs and payment plans as well as obtain validation of debts allegedly owed,” Chopra said.
One bright spot in the CPFB report is that the total balance of medical debt collections on credit reports declined about 9% between mid-2018 and mid-2021. But the share of debt collections from medical bills remained high after a decrease from 60% to 58%.