New protections from medical billing errors, other medical debt problems

Millions of families will benefit from rule to boost credit scores

Health care


Updated

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@kanchanachitkhamma | Public Domain
Millions of Americans struggle with medical billing errors and expensive medical bills.

UPDATE February 6, 2025. A federal judge in Texas granted a 90-day “stay” in a lawsuit against this CFPB rule. The suit was brought by the Cornerstone Credit Union League. This decision effectively prevents the rule from going into effect until June 15, 2025. The court will resume consideration of the case in mid-May.  

Medical billing errors and improper claim denials have been redefining the financial future of millions of families. These bills often turn up on credit reports as unpaid medical debt while these families work to fix the errors or go through complicated insurance appeals. And any kind of debt on a credit report can tank your credit score.

That’s about to change for about 15 million Americans with owed medical bills on their credit report. These people should benefit from better credit scores as a result of a rule issued by the Consumer Financial Protection Bureau (CFPB) which goes into effect in mid-March 2025.  

The new policy eliminates medical debt from credit reports sent to lenders.

Here’s how the new “medical debt” credit reporting rule works. 

Bills owed to health care providers will still appear on people’s credit reports. But when a lender asks a credit reporting agency for a report on an applicant’s debt, the agency will be required to exclude any owed medical bills from that credit report. 

Why should medical bills be treated differently on credit reports.

With other advocates, PIRG worked for years to convince the CFPB to protect people from the negative impact that medical debt has on consumer credit ratings. 

We pointed to two important reasons why lenders should not make loan decisions based on medical bills reported to credit agencies.

  • The frequency of medical billing errors. 

Not all of the medical bills reported to credit bureau is actually owed by the patient. The CFPB has received people’s complaints about debt collectors who “continue to collect on and report to the credit bureaus medical bills even after the consumer has shown that they do not owe the amount.” The agency has had enough evidence to successfully take action against debt collectors who don’t have adequate information to prove the patient owes actually owes the bill. Overbilling, double-billing and other problems with medical bills reported on credit reports make reports less than accurate.

  • Medical debt is not a predictor of credit-worthiness

The CFPB’s own report showed that medical debt is not an indicator of a person’s desire and willingness to pay off loans. As opposed to consumer debt, which often results from irresponsible spending, medical bills generally are unavoidable.  

It can take a long time to resolve an error in a medical bill or appeal a denied claim. This rule protects families from unnecessarily suffering from a poor credit score. And it helps families get back on their feet after incurring significant medical bills that they can’t pay off in 90 days. 

The new rule does not eliminate any medical debt that is owed. 

Folks are still required to pay off any medical bills they actually owe. But the rule will help avoid a situation where they might be denied a credit card or car loan while they are making their medical bill payments and are still getting their health back. 

Two important exceptions to the rule.

  1. The rule only removes medical debt when lenders ask for a credit report. Landlords and employers who request credit reports will still see reported medical debt.  
  2. Any overdue balances on “medical credit cards” will still appear on credit reports. Charges to “medical credit cards” are considered regular consumer debt, not medical debt. That’s because the debt is owed to a financial institution which owns the medical credit card, not the health care provider themselves. Rather, patients should ask their health care provider (hospital, clinic or doctor) for a payment plan. It will cost less. And if they have trouble paying off the medical bill on time, it will be considered “medical debt” and covered under this rule.

We applaud the CFPB for issuing this rule – it is yet another example of how this crucial agency protects consumers from unfair practices.

Unfortunately, lawsuits and some members of Congress are trying to block this rule from going into effect.

If you think there is an error on your credit report, here’s how to fix it: How to make sure your credit reports don’t include paid medical debt

 

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Patricia Kelmar

Senior Director, Health Care Campaigns, U.S. PIRG Education Fund

Patricia directs the health care campaign work for U.S. PIRG and provides support to our state offices for state-based health initiatives. Her prior roles include senior policy advisor at NJ Health Care Quality Institute, associate state director at AARP New Jersey and consumer advocate at NJPIRG. She was appointed to the Ground Ambulance and Patient Billing Advisory Committee in 2022 and works with patient advocates across the U.S. Patricia enjoys walking along the Potomac River and sharing her love of books with friends and family around the world.