Medical debt is a serious problem for American consumers and creditors alike – consumers hold $88 billion in medical debt as of June 2021. According to a February 2022 report from the Consumer Financial Protection Bureau (CFPB), it makes up more than half of all collection tradelines in consumer credit records. Most of these tradelines are under $500, but many consumers have several tradelines. About one-third of all adults in the country have medical debt in some form, and collecting this kind of debt poses distinct problems for creditors.
"Medical debt is not like other forms of debt," Brian Deese, director of the White House National Economic Council, said on Yahoo Finance Live. "In almost all cases, most cases, you don't choose to take it on. It happens when you have a health event happen in your life. And medical debt is not a very good predictor of future credit quality, as well."
Both the federal government and the private sector are now making efforts to assist consumers dealing with medical debt, including relief for the debt itself and reduction of the negative impact medical debt can have on consumers’ credit history. Shortly after the CFPB released its report, Equifax, Experian, and TransUnion announced two new policies:
- Beginning on July 1, 2022, they will not include medical debt on credit reports once it is paid off
- Medical debts that are less than $500 will not be reported at all beginning in 2023
The White House is ramping up its efforts to help American citizens reduce their medical debt and stay informed of their rights. It introduced a four-step plan in April 2022 that includes:
- Expanded protections and safeguards for consumers with medical debt
- Measures to deter “harmful practices” by medical providers and debt collectors
- Reduction of medical debt’s effect on consumers’ credit scores
- Medical debt forgiveness for certain individuals
- Notification of consumer rights regarding medical debt
The plan will pose new risk factors for medical debt collectors, credit reporting agencies, lenders, and others. Healthcare creditors will need to plan for these new policies in their collections management systems.
How Will This Directly Impact American Consumers?
The White House’s plan will offer numerous benefits for American consumers.
Grace Period Expansion
The plan will expand the medical debt collection grace period from six months to one year. A 2016 amendment to the Fair Credit Reporting Act (FCRA) requires credit reporting agencies to wait at least 180 days before including medical debt in a consumer’s credit history. They will now have to wait at least 365 days after receiving this kind of information.
This grace period reduces the impact of medical debt by giving consumers additional time to make payments. If a consumer can pay off the debt during the one-year grace period, the credit reporting agencies will no longer include it in that consumer’s credit report at all.
Reduced Impact of Medical Debt on Consumers’ Credit History
The White House plan will reduce the role that medical debt plays in determining whether Americans can access credit. These measures will help people with medical debt be better able to buy a home or receive small business loans.
As mentioned above, the three largest credit reporting agencies have announced that they will no longer include small medical debts in consumer credit history. This policy change, however, does not help the millions of Americans with medical debts of more than $500. The White House is addressing this problem by revising government underwriting programs. For example:
- Federal programs that assist people with buying homes, including the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and Department of Agriculture (USDA) will no longer consider medical debt or will minimize its importance when evaluating a loan applicant’s creditworthiness
- The Federal Housing Finance Agency (FHFA) has stated that it is reviewing the credit criteria for conventional mortgages used by Fannie Mae and Freddie Mac
- The Small Business Administration (SBA) will explore ways to limit the effect of medical debt on access to capital for small businesses
The White House has directed the Office of Management and Budget (OMB) to issue guidance to other federal agencies about disregarding medical debt.
Consumer Rights Education
The CFPB has new guidance on expanding its consumer educational tools. It will be able to help consumers better navigate medical billing and collections systems and locate appropriate resources and financial assistance. It will also provide greater education about consumers’ rights under laws like the FCRA, the Fair Debt Collection Practices Act (FDCPA), and Regulation F (Reg F).
Medical Debt Forgiveness
The American Rescue Plan included a program that has allowed the VA to cancel or refund about $1 billion in copayments to more than one million veterans, as well as providing other relief. The White House’s plan will allow forgiveness of VA medical debt for over 500,000 low-income veterans. The CFPB will work to simplify the process of applying for relief, a typically stressful and complicated process.
The VA has also revised its policy on reporting veterans’ medical debt. A new rule will reduce unfavorable debt reports by 99%.
What This Means for Creditors and Lenders
In addition to the White House’s plan for medical debt, a new law impacts medical debt collection. Congress passed the No Surprises Act in late 2020 as part of an omnibus appropriations bill, and it took effect on January 1, 2022. The law deals with unexpected bills that may arrive after a person has received emergency medical treatment. The Secretary of Health and Human Services (HHS) called it “the most critical consumer protection law since the Affordable Care Act.”
The White House has directed HHS to review billing and debt collection practices by medical providers. It has also directed the CFPB to hold medical providers and debt collectors responsible for unfair or harmful practices under the No Surprises Act.
Payment Options and Financial Assistance
The White House plan places a duty on medical providers to offer non-predatory payment options and financial assistance to patients who cannot pay for care because they are un- or underinsured. Many patients, however, currently report not receiving such help. The number of lawsuits filed by hospitals against patients has increased in recent years, and the use of third-party debt collectors can lead to “persistent and aggressive collections practices.”
Access to Government Healthcare Funds
The healthcare system receives about $1.5 trillion each year from the federal government for patient care. “Providers receiving that funding should make it easy for eligible patients to receive the financial assistance they are entitled to,” the White House states. “[They] should not directly or indirectly subject patients to illegal and harassing debt collection practices.”
Liability for Third-Party Vendors
Medical debt creditors will need to be cognizant of any and all practices put in place by third-party agencies that they hire for debt collection services. The CFPB has taken the position that it may place reprimands on creditors for illegal practices by third-party vendors.
CFPB Investigations and Enforcement
The White House has directed the CFPB to investigate credit reporting companies and debt collectors suspected of violating consumer rights. The CFPB has the legal authority to hold violators accountable for their actions under laws like the FDCPA.
The CFPB issued a bulletin in January 2022 about unlawful medical debt collection and reporting under the No Surprises Act. The bulletin includes several reminders for creditors and debt collectors, including the following:
- Under federal law, debt collectors may not “misrepresent the character, amount, or legal status of any debt.”
- Creditors and debt collectors that furnish medical debt information to credit reporting agencies must maintain written policies to ensure that the information they provide is accurate
- The provisions for disputing the accuracy of credit information found in existing consumer protection laws apply to debts covered by the No Surprises Act
In addition to unfair collections practices, the CFPB will target coercive credit reporting and determine whether unpaid medical billing data should ever be included in credit reports.
How You Can Maintain Compliance and Protect Consumers
NeuAnalytics has been providing dynamic solutions for more than 15 years. We are the only solution in the receivables management space that can audit against all federal, state, and local regulations, both current and future, and that can ensure your agencies stay compliant and your consumers protected.
We offer custom platforms for risk management, work management, vendor management and audits, dispute, complaint, and fraud management. Our software tracks the licensing and bonding requirements of your third-party vendors. The framework we provide:
- Offers a set of checks and balances for third-party vendors to ensure all pertinent regulations are being followed and maintained under laws like the FCRA, FDCPA, TCPA, and Reg F
- Ensures your agents are following these different levels of regulations to avoid compliance-related fees, complaints, or lawsuits
- Identifies when compliance issues arise and stops them before it’s too late
These solutions can keep creditors and third-party vendors in compliance with regulations before too much harm can be done.
NeuAnalytics’ purpose-built technology helps lenders and creditors with compliance management, receivables management, and financial operations. Request a free download of our brochure, “Modern Compliance Challenges Require Advanced Solutions,” to learn more about how we can help you and your business to succeed.