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Medical Debt on Credit Reports is Declining (But Don’t Celebrate Just Yet)

Eva Stahl

by Eva Marie Stahl, Undue Medical Debt VP of Public Policy

In February, the Consumer Financial Protection Bureau (CFPB) released a report on third-party debt collection tradelines. That is a mouthful that essentially means the agency analyzed how prevalent medical debt is on people’s credit reports; they found that medical debt tradelines significantly declined (by 37 percent) from 2018–2022. At first blush, this is great news! It’s good that people are not seeing medical debt show up on their credit reports and they are protected from the financial harms that negative credit reporting can bring. Yet, medical debt still makes up the majority of collections — a whopping 57 percent — so what’s the deal? As people who think about nothing but medical debt, we offer a couple of reflections on CFPB’s analysis and a spoiler alert: just because you don’t see it does not mean that medical debt is not harming people every day.

First off, credit scores are important. A good credit score allows people to borrow money, buy houses, fund an education, or buy a car; on the flip side, it can guide employer and landlord decisions, barring people from access to employment or housing. Having your credit ruined by medical debt is not just unethical, it is also illogical. Research shows that medical debt is not predictive of your credit risk. When the National Credit Reporting Companies (NCRCs) announced last year that they would voluntarily limit credit reporting for medical debt under $500 and remove paid medical debt, many were hopeful that it would mitigate the harm of medical debt and set a new standard. Unfortunately, this change does not benefit those with larger debts who may be less able to pay them, disproportionately Black and Hispanic households located in the South. Meanwhile, experts in the field already suspected medical debt reporting was on the decline — the CFPB report affirms this hypothesis and concludes that both regulatory enforcement by their agency and the complexity of medical billing contributed to the drop in credit reporting. (FYI: Reporting to a credit agency is also known as ‘furnishing’.)

Three things grabbed our attention:

  1. A bad credit score is not the only harm of medical debt. The toxicity of medical debt is not solely about a bad credit score. The harm of medical debt transcends people’s credit; it generates stress and uncertainty, leading people to skip the health care they need. Repeated surveys show that over 4 in 10 adults delay or avoid care due to the fear of cost. These delays can lead to worse health outcomes and higher costs for both patients and health systems. At Undue , we hear this all the time — attempts at self-care and home remedies lead to costly complications. In addition to delays in care, unpaid medical bills can lead to mental health issuesranging from stress and anxiety to more serious conditions. Just because a bill does not get reported to a credit agency does not mean that patients are free from the stress and harm of unpaid bills. Most healthcare providers don’t sell their debt to a debt buyer but do use a ‘contingency-fee-based debt collector’1 to pursue unpaid bills for a certain period of time; any unpaid bills are returned to their hospital accounting books as bad debt. For the health system, the case is closed. The patient, however, does not know whether or not the unpaid bill will get reported to a credit agency or if they will be sued. For the patient, there is lingering fear that a medical bill remains out there somewhere and will come due.
  2. Contingency-fee-based debt collectors focus on non-financial debt (medical, utilities, telecom & rent) and are the main furnishers of medical debt; data shows they are furnishing less. Non-buyers or contingency-fee-based debt collectors are the primary source of medical debt furnishing and are furnishing less, according to the CFPB analysis. These collectors reported 38 percent fewer tradelines in Q1 of 2022, signaling a significant shift in practice. The CFPB highlights that, in conversations with non-buyers, furnishing medical debt is overly burdensome; this is largely due to the costs associated with Fair Credit Reporting Act (FCRA) compliance and consumer litigation relative to the debts. The contingency-fee-based market is larger and less consolidated than the debt buyer market; these entities may be smaller businesses and have less capacity to navigate the complexity of furnishing medical debts. Medical debts are more likely to be disputed due to an array of factors including insurer disputes, varying contracted rates and delays in communication with the patient across multiple stakeholders. While the drop in furnishing is good for patients, there is also a small uptick in debt buyer furnishing, largely in banking, financial services and retail. This is a red flag for patients who may put their medical debt on credit cards, transforming it from medical debt to financial services debt where it can be more easily reported to a credit agency.
  3. A lot of medical debt never hits people’s credit reports and remains hidden and harmful. The decline of medical debt furnishing is helpful to consumers but it’s only part of the medical debt story. Some debt collectors may only furnish to one of the National Credit Reporting Companies (NCRC), creating confusion for patients and reducing the reliability of the data on credit reporting. The CFPB notes that, “Because not all debt collectors furnish to a nationwide credit reporting company (NCRC), and those who do may not furnish to all three, this decline in the prevalence of collections tradelines does not necessarily mean the percent of consumers with debts in collections has declined.” Further, as medical debt furnishing decreases, that does not mean that people are not being pursued for unpaid medical bills. Data shows that when people cannot afford an unexpected bill, most report they will pay with a credit card or borrow from family/friends. The reality is that unpaid medical bills can end up hiding from credit reports but continue to create stress and harm for people.

We are excited to see a drop in medical debt furnishing that will benefit patients. However, we caution stakeholders to remain vigilant in monitoring the amount of medical debt that exists across the health care sector. From emergency transportation and hospital services to dental care and prescription drugs, medical debt is pervasive. Credit reporting is a common tool to understand the harm of medical debt, but it is only a subset of medical debt. We know from our work with people nationwide that medical debt haunts people for long periods of time, affecting their mental health, care-seeking behaviors, and life choices; research reinforces this narrative. As we continue to segment medical debt as unique in our credit reporting system, let’s also build the data systems we need to identify the larger problem of unpaid medical bills. States and the federal government must play a more robust role in tracking medical debt and make that data publicly available. This could include annual reporting that draws on multiple sources of data including health care cost reports and by adding medical debt questions to existing survey instruments such as the National Health Interview Survey (NHIS) or Behavioral Risk Factor Surveillance System (BRFSS). Action on data collection is past due and changes in credit reporting highlight the need to better understand the scope of the medical debt problem.

Eva Stahl