New Federal Rule Paves the Way for Americans: Say Goodbye to Medical Debt on Credit Reports!

The Biden administration has announced a significant policy change: medical debt will no longer appear on consumer credit reports across the United States. This rule, unveiled by Vice President Kamala Harris, is set to benefit over 15 million Americans, who could see an estimated average increase of 20 points in their credit scores.

Previously, around 46 million Americans had medical debt listed on their credit reports as of 2020. The new rule aims to alleviate this burden, making financial opportunities like car loans, home loans, and small-business loans more accessible. Harris emphasized the importance of this change, stating, “No one should be denied economic opportunity because they got sick or experienced a medical emergency.”

Since the implementation of the American Rescue Plan (ARP), states have already eliminated over $1 billion in medical debt, impacting more than 700,000 residents. The initiative is on track to forgive approximately $15 billion in debt for nearly 6 million Americans.

While the vice president’s announcement is a step toward financial relief, the rule may face challenges from credit reporting agencies, debt collectors, and opposition from political figures like President-elect Donald Trump.

Medical debt is noted as the leading source of unpaid debt in the U.S., disproportionately affecting women, individuals with disabilities, and Black Americans. Recent research highlighted that 15 million people still have medical debt reported, particularly in low-income areas and the southern states. Despite previous efforts by major credit agencies to exclude smaller debts from credit reports, a sizable population remains affected.

A 2022 analysis by KFF Health Policy Research found that 20 million Americans hold a staggering $220 billion in medical debt. Vulnerable groups, including those with disabilities, women, and non-Hispanic Black individuals, are particularly impacted. Notably, 14% of people who gave birth in the last 18 months reported having medical debt.

The nonprofit organization Undue Medical Debt has actively sought to alleviate this burden by negotiating with healthcare providers to reduce outstanding debts. A recent survey indicated that 27% of Black women postponed or declined health services due to concerns about medical debt. Research links medical debt to poorer health outcomes, emphasizing the urgent need for reform.

Earlier this year, the Consumer Financial Protection Bureau (CFPB) initiated proposals targeting medical debt’s role in credit reporting, aiming to prohibit creditors from using such debts in underwriting decisions. These rule changes seek to modify the Fair Credit Reporting Act’s 2005 provisions regarding medical debts.

Federal initiatives, such as the No Surprises Act, which limits unexpected medical bills, further illustrate the government’s commitment to addressing this pressing issue. Public support for government intervention in medical debt relief remains high, with 66% of Americans in favor of such measures.

Legislators in various states, including Colorado and Connecticut, have begun to take steps toward eliminating medical debt from credit reports. Colorado has become the first state to pass legislation prohibiting this practice, while Connecticut allocated ARP funds to assist residents burdened by medical debt. Arizona is also exploring similar initiatives for its residents.

Despite these advancements, experts like Eva Stahl from Undue Medical Debt caution that removing medical debt from credit reports won’t entirely mitigate the challenges faced by consumers. Debt collectors will continue to pursue outstanding bills, perpetuating financial stress for many individuals. The path towards comprehensive medical debt relief is ongoing, with advocacy groups and legislators working tirelessly to secure lasting financial justice.