Beyond the financial challenge, the burden of unpaid medical debt affects other aspects of life. Overdue medical debts can be recorded on consumers’ credit reports, hurting credit scores, and thereby preventing access to employment opportunities, mortgages, and even renting an apartment. Medical debt can affect you even when you have insurance and a means to pay additional expenses. In fact, an industry survey across age groups shows millennials have the highest medical debt at 52%.
Back in March, the top three nationwide credit reporting agencies (Equifax, Experian and TransUnion) announced some changes to help consumers ease the burden of medical debt. These changes are set to remove about 70% of medical collection debt from consumer credit reports.
Starting July 1, 2022, one of the changes will get rid of your paid medical collection debt from your credit report right away. Previously, the debt may remain on your credit report for up to 7 years, even though it’s been paid. But now, the credit report agencies say they will no longer include it in their credit reports.
Also, the agencies plan to extend the time it takes for unpaid debts to show up on credit reports from 6 months to 12 months. This will give consumers more time to sort out their unpaid debt with their healthcare provider or insurer. Additionally, overdue medical debt below $500 will be removed from consumer credit reports, starting in 2023.
Other Actions That Will Lessen The Burden of Medical Debt
The Biden-Harris administration also announced plans to guide agencies to take actions that will lessen the burden of medical debt on Americans. Actions to be taken by some agencies include:
1. Investigation of billing practices
The HHS has been directed to evaluate healthcare providers billing practices and their effect on access and affordability of care. The organization will look over various data, including medical bill collection practices and financial assistance, from thousands of providers and recommend better policies for the public.
Also, The Consumer Financial Protection Bureau (CFPB) plans to investigate and hold accountable debt collectors who violate consumers’ rights. Back in January, the CFPB released a bulletin reminding providers and insurers of the No Surprise Act and its commitment to preventing unlawful medical debt collection and reporting.
2. No medical debt in USDA loan repayment calculations
The US Department of Agriculture (USDA) will no longer consider medical debt when determining whether borrowers can repay their loans. This means that medical debt will not be included in the borrower repayment calculation. So, more Americans will be able to meet the USDA rural housing service loan requirements and can get a mortgage.
3. Removal of medical debt from VA Care
With the new rule established by the Department of Veteran Affairs, veterans’ medical debt from VA care will no longer be reported. This step was taken to help veterans improve their creditworthiness. And, it will enable more veterans to get a mortgage, secure a job, and generally live better.
Unfortunately, these new rules are not retroactive so if you already have medical debt or have had a negative impact from this, the updates won't help with past debt. But, you can do your part should another medical event land you with a bigger balance than you can afford. More healthcare providers than ever are open to helping you figure out a solution that resolves an unpaid balance for both of you.
While some debate that medical debt shouldn’t be included at all on credit reports, this update will provide additional time for you to resolve or figure out how to pay an outstanding medical bill balance. Should you find you do owe the balance and elect a repayment option with your medical provider, be sure you maintain the agreed upon payment schedule so the balance doesn’t revert back to delinquent status. As well, double check your credit report to ascertain if any balances were incorrectly reported and or the status should be updated.