Credit Scores and the Persistent Problem of Medical Debt
Medical debt on credit scores has slightly declined recently. However, it remains a pervasive issue. The Consumer Financial Protection Bureau (CFPB) recently reported a 37% drop in medical debt tradelines from 2018 to 2022. At first glance, this is positive news, implying fewer people are seeing medical debt on their credit reports. Despite this, medical debt continues to make up 57% of collections.
Credit scores are vital for borrowing money, buying homes, funding education, and gaining employment. Ruining credit scores with medical debt is both unethical and illogical. Research indicates that medical debt doesn’t predict credit risk. Credit reporting limitations on medical debt under $500 were seen as a hopeful change. However, those with larger debts still face significant challenges, particularly in Black and Hispanic communities in the South.
Medical debt impacts people beyond their credit scores. The stress and uncertainty it causes leads many to skip needed healthcare. Surveys show over 4 in 10 adults delay care due to cost fears, resulting in worse health outcomes and increased costs. This underscores how unpaid medical bills inflict both financial and emotional pain.
Most healthcare providers use contingency-fee-based debt collectors rather than selling their debt. These collectors pursue unpaid bills for a limited time before returning them to the hospital as bad debt. For health systems, this closes the case. For patients, the uncertainty remains. They don’t know if the unpaid bills will end up reported, adding to their stress.
Non-financial debt collectors, including those handling medical debt, are the main furnishers of medical debt. According to the CFPB, these collectors furnished 38% fewer tradelines in Q1 of 2022. This indicates a significant shift, as medical debt is considered burdensome due to regulatory costs. The complexity of medical billing adds challenges, resulting in fewer furnishers willing to report medical debt.
The decline in medical debt furnishing is beneficial but doesn’t tell the whole story. Not all debt makes it to credit reports, remaining hidden and harmful. Some collectors report to only one credit reporting company, leading to data issues. As medical debt furnishing decreases, it doesn’t mean people are free from financial pursuits. Unpaid medical bills can be paid with credit cards, converting medical debt to financial services debt, which is easily reported.
We are encouraged by the drop in medical debt furnishing but caution vigilance. Medical debt’s reach extends far beyond what’s reported, affecting mental health, care-seeking behaviors, and life decisions. Better data systems are needed to capture the true scope of unpaid medical bills. State and federal governments need to track and make medical debt data publicly available.
Annual reporting from multiple sources, such as healthcare cost reports, should include questions on medical debt in surveys like the National Health Interview Survey and Behavioral Risk Factor Surveillance System. Improved data collection is necessary to better understand and address medical debt’s impact across the healthcare sector.
Understanding the problem of medical debt on credit scores is crucial for our mission. We aim to support individuals battling denied medical claims. Our services alleviate the financial burdens and stress associated with unpaid medical bills. We’re dedicated to addressing these challenges and providing the necessary assistance.
