Medical debt falls, but the problem persists

Far fewer people in Connecticut and around the country have medical debts on their credit reports according to a report released on Feb. 14 by the U.S. Consumer Financial Protection Bureau. The figures show that the number of Americans with credit reports containing medical debt fell by 17.9% to 8.2 million between 2020 and 2022. In 2014, 19.4% of the approximately 279 million consumer credit reports in the United States contained medical debt. That figure now stands at 13.5%. White House officials wasted no time in taking credit for the fall in medical debt, but efforts made by the CFPB to change the way medical debt is reported may be chiefly responsible.

New credit reporting practices

The Biden administration should be praised for expanding existing health care laws to provide coverage for 4.2 million previously uninsured Americans, but the sharp fall in medical debt is more likely attributable to a change made in the way this debt is reported. In 2022, the three main credit reporting agencies announced that they would no longer report medical bills of less than $500 and remove accounts when they are paid. Equifax, Experian and TransUnion also extended the waiting period for reporting medical debt from six to 12 months.

Medical debt remains a serious issue

While fewer Americans may have medical debts on their credit reports, unpaid doctor and hospital bills are still a serious issue for millions of people. Medical debt in the United States exceeds almost all other consumer debts combined, and it is still a leading cause of personal bankruptcies. According to an academic study published in February, two-thirds of the people who file Chapter 7 or Chapter 13 bankruptcies each year seek debt relief because of medical bills.

Administrative sleight of hand

Consumer advocacy groups may dismiss the CFPB report as an administrative sleight of hand. Changing reporting practices may reduce the amount of medical debt on credit reports, but it does nothing to address underlying issues. Millions of Americans have found themselves in unmanageable financial situations because of an illness or injury, and filing a bankruptcy is often their only option if they want a fresh start.