After recently overhauling a “glitch” in the Affordable Care Act (ACA), the Biden administration is now addressing another issue plaguing the American health care system: medical debt.
On Monday, Vice President Kamala Harris announced the administration’s four-step plan aimed at increasing consumer protections for Americans billed for health care costs.
These measures include holding medical providers and debt collectors “accountable for harmful practices,” reducing the role medical debt plays in determining whether Americans can access credit, forgiving medical debt for over 500,000 low-income veterans, and informing consumers of their rights.
“No one in our nation should have to go bankrupt just to get the health care they need,” Vice President Harris said.
Medical debt ‘not like other forms of debt’
According to a February 2022 report from the Consumer Financial Protection Bureau (CFPB), U.S. consumers held $88 billion in debt as of June 2021. Additionally, the report found that medical debt accounts for 58% of all third-party collection tradelines (i.e., the credit accounts listed on a credit report).
The report highlighted that Black and Hispanic individuals are more likely to have medical debt, along with young adults and low-income individuals.
“This burden is not shouldered equally in America,” Health and Human Services Secretary Xavier Becerra said, adding: “It is a painful truth … this is not just about health care. It’s about economic security.”
Soon after the CFPB findings were released, three of the biggest credit unions — Equifax (EFX), Experian (EXPGF), and TransUnion (TRU) — stated that beginning July 1, they will no longer include medical debt in collections on credit reports once it is paid off. And beginning in 2023, medical debt in collection that’s less than $500 will be excluded from credit reports. Furthermore, the grace period for medical debt collection has been expanded from six months to one year.
The Biden administration highlighted that the $500 debt exclusion only applies to a fraction of Americans in need, which still leaves millions of Americans behind.
“Medical debt is not like other forms of debt,” Brian Deese, director of the White House National Economic Council, said on Yahoo Finance Live (video above). “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.”
Although a step in the right direction, according to Jenifer Bosco, a staff attorney at the National Consumer Law Center, “there’s still much more to be done.”
For instance, she told Yahoo Finance, “a continued push to make sure more consumers have good health insurance and expanding Medicaid in the remaining states would help prevent medical debt from building up in the first place. Better access to hospital financial assistance, which is often required by law, can prevent catastrophic medical debts.”
Going forward, the Biden administration seeks to go a step further by guiding all credit agencies to “eliminate medical debt as a factor for underwriting in credit programs, whenever possible and consistent with law,” the press release said.
However, Bosco noted that while the move will help many consumers, patients will still owe these debts even if they’re excluded from credit reports.
“Anyone with an unaffordable medical debt could still face collections, wage garnishments, or lawsuits,” she said. “We need to both protect vulnerable consumers from the financial harm that can follow medical debt while also addressing the root causes of the medical debt crisis.”
Other steps the administration is taking include empowering the CFPB to increase its consumer education tools so that Americans can better navigate “the complex and often confusing medical billing landscape” and provide materials to these consumers so they can better access financial assistance.
Deese, who spoke during today’s announcement, also said the White House actions will especially help low-income veterans who are often unaware they’re eligible to have their medical debt written off.
Many “are eligible for that relief, but they can’t get it because the process is too complicated,” he said. “We’re going to simplify that to make sure those veterans get the relief they deserve.”