Every year, millions of Americans, most of whom have health insurance, incur medical debt. These unpaid bills often force people to curtail spending on essentials, such as heat, housing and food. Medical debt is the leading cause of bankruptcy in the U.S.
In addition, medical debt can make it harder for Americans to borrow money, including for home mortgages.
A rule change announced by the Biden administration this week will help minimize the impact of this debt on millions of Americans, including thousands of Mainers. It is an important start, but addressing the causes of this debt in the first place — which include opaque and expensive medical bills and inadequate or incomplete insurance coverage — remains a priority for lawmakers, at both the state and federal level.
On Tuesday, the Biden administration announced a rule change to prohibit credit agencies from including medical debt in credit reports. These reports are used to calculate someone’s credit score, which can impact their ability to borrow money, and perhaps, what interest rate they will be charged.
The new rule “will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans,” according to the Consumer Financial Protection Bureau. In a press release announcing the change, the bureau said that medical debt isn’t actually a very good predictor of a person’s overall creditworthiness, and that “consumers frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.”
The CFPB said that its research found that medical debt contributed to thousands of denied mortgage applications, even though the applicants would be able to repay these home loans. It said the rule change is expected to lead to the approval of an additional 22,000 affordable mortgages every year.
“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Vice President Kamala Harris said in a statement from the White House announcing the rule change on Tuesday.
“This will be lifechanging for millions of families, making it easier for them to be approved for a car loan, a home loan, or a small-business loan,” she said.
According to the U.S. Census Bureau, about 15 percent of American households owe medical debt, with about 6 percent owing more than $1,000 and 1 percent (about 3 million people) owing more than $10,000. People who have a disability or complex medical needs have the most medical debt. Black Americans are also more likely to have medical debt.
Medical debt can have wide-ranging consequences. People may spend less on basic needs, such as food and clothing, a Kaiser Family Foundation survey found. To pay for medical bills, people often draw from their savings, borrow money from friends or family members, or take on additional debt.
A recent survey by Consumers for Affordable Health Care found that about 150,000 Maine households had medical debt. These households report having difficulties paying for basic necessities like food, heat, or housing.
The rule change has already been challenged in federal court. It could also be overturned by the incoming Trump administration.
That’s why action from the Maine Legislature is essential. A bill last session aimed to address some medical debt by restricting medical credit cards, which some health care companies offer as a way for patients to pay off medical bills over time. It failed in the Maine Legislature.
A state bill that mirrors the federal rule change should be considered. Colorado, Minnesota and New York have enacted laws restricting the reporting and use of medical debt to impact credit scores.
Maine should join these states in limiting the impacts of medical debt. At the federal level, more action is essential — but likely to remain elusive — to address the root causes of medical debt such as inadequate or incomplete insurance coverage and health case costs that are much higher than in countries of similar economic standing.
