Banning Medical Debt From Credit Reports May Have Unintended Consequences

The promise of eliminating medical debt from credit reports — per the finalized rule from the Consumer Financial Protection Bureau (CFPB) — is that consumers’ credit scores will go up, and in some cases significantly. The numbers are a bit eye-popping, as the agency has said that $49 billion currently in collections is falling off the credit reports of more than 15 million individuals.

The positive ripple effects that are anticipated include the fact that, because would-be lenders won’t use medical debt in their underwriting decisions, consumers will wind up having access to a greater range of financial products.

Much remains to be seen as to what happens — including, of course, whether the new rule winds up being implemented over any real length of time. The jury is still out as to what will happen to the CFPB itself, and whether recent rule-making, including but not limited to the announcements concerning medical debt, will be scaled back or even rescinded outright.

Unintended Consequences

Beyond that uncertainty lies the specter of unintended consequences, particularly for the healthcare ecosystem as a whole. Though the CFPB has claimed that medical debt remains a “poor” predictor of whether or not someone can repay their loans — in the setting where a lender is mulling whether or not to extend credit — leaving the debt off reports removes some incentive to pay that exists between the patient and the provider. The process of chasing debt, placing it in collections and seeking to be repaid is a long and costly one. 

Data from the Census Bureau has revealed that as recently as 2021, there was $220 billion in healthcare-related debt. With at least some incentive to pay or make financial arrangements — a negative credit event — falling by the wayside, the impact is that insurers and providers may raise their own fees to offset the incremental debt that may become uncollectible in the wake of the CFPB’s actions. 

There’s real potential in solving the unpaid bills issue by fostering a collaborative approach between patients and providers. In an interview with PYMNTS, Adam Keck, senior vice president, director of managed services solutions at Fifth Third Bank, said “You’re starting to see people select doctors and practices based upon the ease of doing business with them, the ease of making payments, and clear, concise billing.”  Providers need to adopt scalable solutions that offer choice while ensuring all payment methods are seamlessly integrated into their systems.

Elsewhere, PYMNTS Intelligence has found that 89% of patients consider knowing their bill and making a payment before their visit to be an easy way to pay. Around 59% of patients would consider leaving their healthcare provider due to services not being covered, and thus having to pay out of pocket. 

The data show that 72% of consumers say they want a platform that helps them arrange financing options for their medical bills, a roughly equal percentage, at 71%, desire assistance with finding financial services providers to arrange that financing.