WASHINGTON, D.C. – Today, Oregon’s Senator Jeff Merkley and Senators Dick Durbin (D-IL), Richard Blumenthal (D-CT), Bob Menendez (D-NJ), and Chuck Schumer (D-NY) introduced the Medical Debt Relief Act. This legislation would prevent medical debt from continuing to damage consumers’ credit scores after it has been paid off or settled, ensuring that otherwise-creditworthy consumers are able to find affordable credit to buy a home or a car or take out a loan.
Medical debt is unlike other types of debt. As opposed to credit card debt or loans that consumers take on willingly, medical debt is often the result of unexpected accident or illness that is outside the consumer’s control. Additionally, due to complex medical billing systems and the potential for misunderstandings with health insurance companies, medical bills are often sent to collections before it is clear whether it is the consumer or the insurer who owes money to the health care provider.
“No American should be denied the opportunity to buy a home or a car simply because they had the misfortune to need medical care,” said Merkley. “This bill presents a permanent, common-sense solution to a problem that has haunted millions of Americans for far too long. Removing paid-off and settled medical debts from consumer credit reports is a win-win for both consumers and our economy.”
“After a sudden illness or medical emergency and the skyrocketing cost of critical treatment, the last thing families should have to deal with is a plummeting credit score,” said Durbin. “But all too often unresolved medical debt bills, including those stuck in insurance red tape through no fault of the consumer, are provided to credit reporting agencies with serious negative consequences for consumers. This practice unfairly damages a consumer’s credit score for years after the debts have been paid in full. Our legislation would restore fairness in the system by ensuring that medical billing problems don’t become part of a patient’s permanent credit record.”
“This bill will separate medical debt from consumer debt, ensuring that emergencies and illnesses do not permanently ruin anyone’s financial future,” said Blumenthal. “People involved in an accident or mired in an illness should be focused on recovery – not on protecting their credit score. Medical debt should not be lumped into the same category as credit card debt and purchases consumers willingly make. This practice has long legs, even after debts are paid, preventing consumers from buying a home or a vehicle and limiting financial opportunities.”
“All the financial planning in the world can’t prepare our middle class families for sudden medical emergencies or unforeseen illnesses – and the bills that come with them,” said Menendez. “Yet, too many hard-working people find themselves unable to get the loan they need to buy a car or a house because their credit score has been dragged down over medical debt – and that makes no sense. Simply put: If we can’t predict when a medical accident happens, we shouldn’t penalize a consumer for having one. Now it’s my hope that Congress can do the sensible thing and pass our bill.”
The Consumer Financial Protection Bureau has found that 43 million American consumers have overdue medical debt on their credit reports, and that 15 million have only medical debt on their credit reports. Many consumers mistakenly believe that unpaid medical bills have no influence over one’s credit score. However, once a debt is assigned to collections, even if the cause was an inefficient healthcare billing system, the account will be considered a derogatory account by credit scoring algorithms.
In 2015, the New York Attorney General reached a major settlement with the three national credit reporting agencies—Experian, Equifax and Transunion—in which the agencies agreed to institute a 180-day waiting period before medical debt will be reported on a consumer’s credit report and to remove all medical debts from a consumer’s credit report if and when the debt is paid by an insurance company. However, the settlement does not include relief for responsible consumers who pay off their debts themselves, as opposed to having them paid by an insurance company.
Due to the atypical nature of medical debt, the predictive value of medical accounts on credit reports is low. Credit reporting companies have testified before Congress that removing medical debt from consideration would not harm the predictive value of consumer credit reports.
The Medical Debt Relief Act would make permanent the consumer protections instituted by the credit reporting agencies following the 2015 settlement. In addition, it would ensure that medical debt that is paid off or settled by a consumer is promptly removed from a credit report rather than haunting their credit score for years after.
The Medical Debt Relief Act has also been introduced in the U.S. House of Representatives by Rep. John Carney (D-DE), along with a bipartisan group of cosponsors. The legislation is endorsed by more than 50 leading national organizations, including medical and patient advocacy organizations, consumer advocates and business organizations representing homebuilding and mortgage lending. For a full list of endorsing organizations, click here.