What Changes to Medical Debt Reporting Mean to You

The COVID-19 pandemic has had far-reaching, life-changing consequences for all of us, many of which are still coming to light. One of the most obvious results, however, has been a significant increase in the average American’s medical debt—along with a corresponding spike in medical debt collections. According to the Consumer Financial Protection Bureau (CFPB), as of June 2021, Americans had $88 billion in medical debt on their consumer credit records.1 The actual amount is likely even higher, considering not all medical debt collections are furnished to consumer reporting agencies.

According to the CFPB, Americans report being contacted by debt collections about medical debt more than any other type of debt.

Mounting medical debt has a major impact on Americans’ credit scores, especially coupled with late and missing payments.2 A single unexpected medical bill can cause a ripple effect, damaging a person’s credit history, which can in turn limit their ability to find housing or qualify for loans and credit cards. In short, many Americans are now not only facing the burden of increased medical bills due to the pandemic, but also the negative repercussions that falling behind on those bills might have on their credit.

To offer consumers some relief from this burden, the three major national credit reporting agencies announced a joint effort earlier this year to implement big changes to medical debt reporting. The changes are projected to wipe nearly 70% of medical collection debt from consumer credit reporting, providing millions of Americans who are struggling with medical debts an opportunity to minimize damage to their credit.

If unexpected doctors’ bills and medical debt collections have you stressed, here’s how the upcoming changes to credit reporting might help you:

First of all, what’s changing?

In their announcement on March 18th, Equifax, Experian, and TransUnion announced three major changes to medical debt reporting.

Effective July 1, 2022:

●      Any medical debt that was paid after it was sent to collections will no longer be included on consumer credit reports.

●      The amount of time before unpaid medical collection debt appears on a credit report will be increased from six months to one year.

●      In the first half of 2023, medical collection debts under $500 will not be included on credit reports.

Why is this happening now?

Medical debt has had an outsized effect on consumer credit reports for a long time, but the pandemic has severely exacerbated the situation.4 The decision to change medical debt reporting came on the heels of a report published by the CFPB in early March 2022.

The CFPB’s report outlines key areas of concern regarding medical debt collections and reporting, including the surge of pandemic-related medical debt and the disproportionate impact of that debt on frontline workers, who are both more likely to have been exposed to the COVID-19 virus and less likely to have medical insurance than the general population.

The report also highlights the fallibility of medical debt collections as a predictor of future payment problems.  Medical debt is not only extremely common—according to the CFPB, 58% of all third-party debt collection tradelines were for medical debt5—it’s also wildly unpredictable. Bill amounts can fluctuate significantly based on patient and provider characteristics, and the prices can be marked up far beyond the providers’ costs, especially at for-profit, investor-owned hospitals. Meanwhile, uninsured and out-of-network patients are often charged much higher prices than in-network patients, even though they likely have less ability to pay.

Acknowledging that costly medical bills often arise unexpectedly, the joint statement released by the CEOs of Equifax, Experian, and TransUnion frames the change to medical debt reporting as an industry-wide effort to help mitigate the impact on Americans’ financial and personal wellbeing.

What do the changes mean for me?

If you’ve got medical debt in collections, this is good news. By midsummer, any medical collection debt that is less than a year old or that you’ve already paid off will no longer appear on your credit report.

However, just because it won’t be on your report doesn’t mean you’re off the hook entirely. The reporting changes simply give you more time to work with your insurance or healthcare providers to address new debt before it starts to affect your credit and prevent any debts you’ve already paid from potentially lowering your credit score. Your medical debt will still be legally collectible, and creditors will retain the ability to contact you for payment or sue to collect on the balance.

Do the changes apply to all medical debt?

Unfortunately, no. The new reporting changes will not apply to medical debt that has already been covered by a loan or charged to a credit card. Once a bill from a medical provider is charged to a credit card, it becomes credit card debt, not medical debt.

Any unpaid medical collection debt over $500 that has been owed for longer than one year may also remain on your credit report.

What should I do about small medical debts?

Whether your medical debt is big or small, you’re still responsible for paying back what you owe. Try to use the extended time period provided by the new reporting rules to negotiate your bill with your medical provider and/or get help with payment before your account is sent to collections.