The Biden administration is moving to ban medical debt from credit reports.
Vice President Kamala Harris said Tuesday that the proposed rule, taken through the Consumer Financial Protection Bureau, would reduce the number of Americans with medical debt listed on their credit reports to zero, down from 46 million in 2020.
In a press call Tuesday, Harris said the move would help improve the financial health and wellbeing of millions of Americans.
Medical debt, she said, “makes it more difficult to get by, much less get ahead. That is simply not fair.”
The administration calculates that if implemented, the rule would raise affected individuals’ credit scores by an average of 20 points, and could lead to the approval of approximately 22,000 additional mortgages every year as a result of the cleaned-up credit reports.
A recent study estimated that one in five U.S. households live with medical debt, including people with health insurance; and that on average, a typical American household owes about $4,600 in medical debts.
It’s not as huge as some people think. All 3 credit bureaus stopped reporting unpaid medical debt with an initial balance under $500 as of July 1, 2022, which is 70% of medical debt (when you have $15,000 of debt that’s usually split 50 ways).
They also no longer report medical debt that has been paid - even if it is late. Additionally, debt collectors now have to wait a year to report you, giving you time to negotiate a more reasonable rate or have the debt discharged.
That’s not to say this isn’t good, but things have been improving massively on this front for the past few years. Reality is that with so much bullshit medical debt, the bureaus are going to have to either ignore it or nobody will be able to get a loan, which is worse for the banks than loaning out money to someone who had an unexpected 6-figure bill because their insurance sucks.