Key points to remember
- Three major credit reporting agencies — Equifax, Experian and TransUnion — are removing most medical debt from credit reports starting in July.
- The change may provide relief to Americans who face the financial consequences of incurring medical debt.
- Experts applaud the change, but say the changes made by credit reporting agencies are not enough on their own to reduce health care costs.
The three national credit reporting agencies – Equifax, Experian and TransUnion – said they would change the way they flag medical debt on consumers’ credit histories starting in July.
Agencies will remove nearly 70% of medical collection debt from credit reports. They will also double the grace period from six months to one year before unpaid debt appears on a report. Unpaid medical debt under $500 will no longer appear in reports in the first half of 2023, the companies said.
Experts say the move could ease some financial hardship caused by surprise medical bills, but is unlikely to fix the unaffordable health care system in the United States.
“Poor credit due to health care can limit people’s ability to lead normal lives,” David Berg, president and co-founder of Redirect Health, told Verywell.
Systemic problems in the health system, including expensive medical treatment, faulty billing and lack of financial transparency, require change, he added.
The high price of a healthy life
Medical debt is a major source of debt for Americans. About 20% of U.S. households report having medical debt, according to a 2022 report released by the Consumer Financial Protection Bureau (CFPB). This problem is more prevalent among black households, with 28% reporting having outstanding medical debt.
“Medical debt collection debt often arises from unforeseen medical circumstances. These changes are another step we are taking together to help people across the United States focus on their financial and personal well-being,” according to a joint statement from the CEOs of Equifax, Experian and TransUnion.
A bad credit history can impact a person’s ability to make substantial investments in their life, such as buying a home, qualifying for insurance, or opening a bank account.
According to the US Census Bureau, people who have or are at risk of medical debt may also avoid seeking necessary medical care.
How can medical debt affect a person’s credit score?
If healthcare providers fail to collect the debt, they often send the account to a third-party collection agency, which then reports the outstanding balances to the credit bureaus, according to the CFPB.
But when someone uses a credit card to pay an expensive medical bill and then struggles to pay off the balance afterwards, it can still dramatically lower their credit score.
“A lot of people think medical debt is a debt to medical providers,” Lunna Lopes, senior survey analyst for the Kaiser Family’s public opinion and polling research team, told Verywell. Foundation (KFF). “But one thing we have to keep in mind is that a lot of people might be paying their medical bill with their credit card – now they owe the credit card.”
This could lead some patients to get stuck in a vicious cycle of poor health and unaffordable care. According to a 2019 survey by Peterson and KFF, people struggling with health issues and financial insecurity may also need medical attention the most.
According to the survey, 38% of people with “fair” or “poor” health had medical debt. People with lower household incomes were also more likely to have medical debt.
Credit score and insurance coverage
According to Michael Jan Baldicana, who works for Pyramid Credit Repair, a company that helps people repair flaws in their credit report, sometimes bad credit scores can prevent people from getting certain types of insurance policies that cover specific medical treatments or procedures.
“The underlying reason for this is that health insurers are risk averse and want to avoid paying claims that will be difficult to recover from,” Jan Baldicana wrote in an email to Verywell.
A 2019 KFF poll found that around a quarter of adults without insurance said difficulty paying medical bills had a major impact on themselves and their families, compared to 12% of insured adults. KFF also found that people with low incomes or with chronic illnesses were among the most likely to report that their medical debt had a negative effect on them or their families in 2019.
Berg said removing medical debt from credit scores won’t make health care affordable, but it will reduce or delay the consequences of a missed payment. “I applaud that we have removed medical debt from the credit scoring system,” he said. “He should never have been there in the first place.”
What this means for you
Effective July 1, 2022, Equifax, Experian and TransUnion will make changes to how they record medical debt on credit reports, including removing records of paid medical debt.