Credit Bureaus’ Medical Debt Move Spotlights Affordability Issues

Bit by bit, the realities of the paycheck-to-paycheck economy are changing the way credit, and creditworthiness, is monitored.

To that end, the three major credit bureaus — Experian, Equifax and TransUnion — will move to take roughly 70% of the medical debt that is currently in collections off of individuals’ credit reports.

To get a bit more granular, the bureaus will remove medical debt that was paid after that debt had been sent to collections, rather than have that debt show up on credit reports for as long as seven years.

The trio of rating agencies will also remove unpaid medical debts below $500 sometime next year, according to reports.

The moves by the credit bureaus shine a light on the difficulties inherent in grappling with medical debt, which can, and perhaps usually does, come when there’s an unforeseen health-related event, and attendant bills that simply are unmanageable. No surprise, too: Healthcare-related costs are top of mind in the middle of a pandemic that is now stretching on into its third year.

The Consumer Financial Protection Bureau (CFPB) has estimated that $88 billion in medical debt is tied to 43 million credit reports.

Paycheck-to-Paycheck Consumers Stretched 

That sticker shock is real — especially where 64% of the population lives paycheck to paycheck. Savings rates for people who make less than $50,000 annually stand at about $780 for those who already have difficulty making ends meet.

Read also: Savings Won’t Be Enough to Prop up Retail Spend in Paycheck-to-Paycheck Economy

Earlier this year, PYMNTS research found that one-quarter of high-income consumers who live paycheck to paycheck with issues paying their bills say they would not be able to pay a $400 emergency expense.

And as many as 43% of consumers living paycheck to paycheck who struggle to pay their bills each month say they would not be able to pay.

Fifty-two percent of those who earn less than $50,000 and 38% of those earning $50,000 to $100,000 say they would not be able to pay a $400 expense. Healthcare, as a percentage of consumers’ financial burden, is only on the rise: Late last year, 21% of consumers reported that they were paying more for healthcare-related costs than they had been paying in previous years.

Separately, PYMNTS has found that many consumers expect to pay a co-pay for their healthcare visits but want transparency into their treatment costs. When a patient can pay before a visit, they most likely know what treatment costs. Our research finds that 89% of respondents say knowing their bill and paying before their visit is an easy way to pay.

Read the report: Only One-Third of Patients Get Healthcare Cost Estimates Before Visits