I’m an Economist: How a Biden Win Could Affect Your Medical Debt
The Biden administration — in conjunction with the Consumer Financial Protection Bureau (CFPB) — proposed a rule in June that would remove medical bills from credit reports of more than 15 million Americans, who collectively have $49 billion in medical debt.
The measure, if approved, could increase these individuals’ credit scores by an average of 20 points, as well as trigger the approval of 22,000 additional mortgages every year, according to a White House fact sheet.
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On a call with reporters on June 11, Vice President Kamala Harris said that more than 100 million Americans struggle with medical debt.
“And one of the most significant consequences of carrying medical debt is the harm it does to a person’s credit score,” she said, according to a transcript of the call. “Medical debt makes it more difficult for millions of Americans to be approved for a car loan, a home loan, or a small-business loan, all of which, in turn, makes it more difficult to just get by, much less get ahead.”
Indeed, a Peterson-KFF analysis recently found that research found that Americans with medical debt “are more likely to be financially vulnerable in other ways compared with adults who do not carry those unpaid balances.”
For instance, the analysis found that 72% of them also carried a credit card balance, while 58% said they were “just getting by.”
Some changes around medical debt on reports have been implemented in 2022 and 2023, when Equifax, Experian and TransUnion started removing 70% of medical collection debt from consumer credit reports and no longer including medical collection debt under $500 on reports.
CFPB director Rohit Chopra said that this was “in part because of the recognition that they hold little predictive value.”
Yet, despite these changes, “15 million Americans still have $49 billion in outstanding medical bills in collections appearing in the credit reporting system,” according to the CFPB.
The administration’s most recent proposal would also go further, for instance banning lenders from taking medical devices — such as wheelchairs or prosthetic limbs — as collateral for a loan when individuals fail to pay, the CFBP noted.
This latest announcement was lauded by many, including the National Consumer Law Center, which said in a release that this would be a “huge relief for the millions of people who’ve been severely harmed by the cascading effects of medical debt.”
“For far too long, medical debt has devastated the credit history of too many consumers, harming their economic prospect,” said Chi Chi Wu, senior attorney at the National Consumer Law Center. “Yet, as the CFPB has found, medical debt has limited predictive value for creditworthiness compared to other types of debts.”
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More Harm Than Good
Yet, some other experts argued that erasing medical debt could do more harm than good to both your credit and finances.
For instance, according to Thomas Savidge, research fellow at the American Institute for Economic Research, while the short-term effect will hide debt from a credit check, the long-term effect will reduce access to credit.
“Lenders will have less information, making them less willing to offer access to credit because they will be unsure if someone can keep their promises,” Savidge said. “Erasing medical debt also does not address the root causes of rising medical costs such as regulations that limit availability of care options and caregivers.”
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In addition, some experts also noted that this move would not address the root of the issue — the “incredibly high cost of healthcare without a commensurate increasingly high improvement in quality.”
“For example, as costs continue to skyrocket, lifespans have peaked and are no longer improving while obesity, heart disease, and non-physical disabilities have never been more prevalent,” said Vijay Marolia, founder and chief investment officer of Regal Point Capital Solutions.
According to Marolia, this move is akin to “winning a weird type of lottery that would never exist outside of political motivations.
“For everyone else it’s a net negative in the long run; any stimulative effect will be short-lived and ineffective overall,” he added.
And there’s also the fact that while the debt is erased from the credit report, the debt itself still remains.
Indeed, Breno Braga, principal research associate at the Urban Institute, told The New York Times that “in most states, hospitals and medical providers can still take patients to court to collect it.”
Braga also said there could be a slew of additional unintended consequences.
“Healthcare providers, for instance, could potentially demand payment upfront for services if they worry that they won’t be able to collect the money later. Or they could increase their promotion of medical credit cards, which can add interest costs to patients’ bills,” according to The New York Times.
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This article originally appeared on GOBankingRates.com: I’m an Economist: How a Biden Win Could Affect Your Medical Debt