LUGPA Policy Update: Initiative to Alleviate Medical Debt

Oct. 2024

The escalating healthcare costs in the United States have imposed a growing financial strain on American patients and their families. Regulatory shifts introduced by the Affordable Care Act (ACA) transferred healthcare cost burdens from insurers to patients, resulting in significant financial challenges during and after treatment. This financial strain, commonly referred to as "financial toxicity," impacts patients across various medical conditions, with cancer treatment recipients facing a hefty burden.

As patients shoulder an increasing share of healthcare costs, out-of-pocket spending is projected to reach a staggering $491.6 billion, equating to approximately $1,650 per person, according to Kalorama Information. This relentless cost increase positions the United States as an outlier among Organisation for Economic Co-operation and Development (OECD) nations, allocating 17.8 percent of its GDP to healthcare in 2021—nearly double the OECD average.

According to the Kaiser Family Foundation, in 2023, 41% of American adults reported having medical or dental debt, with 30% unable to afford an unexpected $500 medical expense without going into debt. This debt often leads to delays or avoidance of necessary care and, in some cases, denial of care.

About 100 million people in the U.S. grapple with healthcare debt, leading many to deplete savings, take out second mortgages, or reduce spending on essentials, according to KFF Health News. In 2022, a quarter of those in debt owed over $5,000.

Biden Administration's Initiative

In response to these challenges, the White House has launched a significant initiative to shield Americans from the weight of medical debt. This initiative focuses on formulating federal regulations to safeguard patients' credit scores from unpaid medical bills, potentially benefiting millions and improving their employment, housing, and loan access prospects.

The Consumer Financial Protection Bureau (CFPB) spearheads this initiative, emphasizing the importance of affordable healthcare without incurring crippling debt. Expected to roll out in the coming year, these regulations could alleviate the financial burdens approximately 100 million Americans face, mitigating consequences such as job loss and housing instability.

The latest rule change, announced by the CFPB on June 11, would prevent almost any medical debt from appearing on credit reports. This proactive approach aims to ensure that medical bills, which have little to no predictive value when it comes to repaying other loans, do not hinder patients' access to necessary financial services. LUGPA supports these efforts to enhance patient care and reduce the financial toxicity associated with medical debt.

CFPB's Rulemaking Process

In September, the CFPB initiated a crucial rulemaking process to expunge medical bills from Americans' credit reports. This strategic move aims to alleviate the financial burden on families grappling with medical crises, curtail coercive tactics employed by debt collectors, and rectify prevalent inaccuracies in the credit reporting system.

Proposed Measures

The proposed measures and alternatives considered in the CFPB's medical debt rulemaking include:

Exclusion of Medical Bills from Credit Reports: Consumer reporting companies would be forbidden from incorporating medical debts and related collection information into consumer reports used by creditors for underwriting decisions. This proactive step seeks to eliminate the adverse impact of medical debt on individuals' creditworthiness.
Restriction on the Use of Medical Bills in Underwriting Decisions: The proposal refines the 2005 exception, explicitly preventing creditors from factoring in medical collections information when assessing credit applications. This would shield borrowers from potential discrimination based on medical debts.
Mitigation of Coercive Collection Practices: With the removal of unpaid medical bills from consumers' credit reports used in underwriting decisions, the proposal intends to dismantle the leverage that debt collectors often exploit. This would inhibit debt collectors from using the credit reporting system to pressure consumers into settling disputed debts.
Elimination of the Special Medical Debt Exception: The proposed rule would remove the exception that broadly permits lenders to obtain and use information about medical debt to make credit eligibility determinations. Under certain conditions, lenders could still consider medical information related to disability income and similar benefits, as well as medical information relevant to the purpose of the loan.
Establish Guardrails for Credit Reporting Companies: The proposed rule would prohibit credit reporting companies from including medical debt on credit reports sent to creditors when creditors are prohibited from considering it.
Ban on Repossession of Medical Devices: The proposed rule would prohibit lenders from taking medical devices as collateral for a loan and from repossessing medical devices, like wheelchairs or prosthetic limbs, if people are unable to repay the loan.

State Initiatives

In addition to the federal efforts, states like Minnesota and Oregon have implemented reforms. Minnesota's Debt Fairness Act prohibits denying care due to medical debt, restricts credit reporting of medical debt, and enhances consumer protections. Oregon's H.B. 3320 strengthens charity care requirements for hospitals, aiming to improve access to financial assistance and ensure compliance with federal tax-exempt obligations.

On September 24, California Governor Gavin Newsom signed a bill prohibiting healthcare providers and collection agencies from reporting medical debt to credit agencies. Effective in January, the law extends protections to employment and tenant screenings. However, it does not cover medical credit cards or specialty loans, which can carry interest rates as high as 36%, meaning that debt will still appear on credit reports.

In Arizona, consumer advocates successfully placed a ballot measure in 2022 to cap interest rates on medical debt, which was supported by 72% of voters. Similarly, in 2024, an Illinois bill to prohibit credit reporting for medical debt passed unanimously in the state Senate and with overwhelming support (109-2) in the House of Representatives.

The Impact of Medical Debt

A joint investigation by KFF Health News and NPR highlighted the pervasive issue of medical debt, impacting an estimated 100 million individuals. Hospitals resorting to credit reporting to prompt bill settlement inadvertently contribute to financial challenges by restricting access to housing and, in some cases, contributing to homelessness. CFPB research underscores that medical debt does not reliably reflect a consumer's creditworthiness, raising concerns about its inclusion in credit reports.

In 2022, the three largest credit bureaus—TransUnion, Equifax, and Experian—began removing paid medical debts from consumers' credit reports. The following year, they ceased reporting outstanding medical balances under $500. Similarly, FICO and VantageScore, the two primary credit scoring companies, have reduced the impact of medical bills on credit scores.

However, medical debt can still have significant financial consequences, limiting your options for housing, loans, and credit cards.

LUGPA remains steadfast in its commitment to collaborating with lawmakers to alleviate patients' financial burdens and mitigate financial toxicity in urology. Working closely with legislators, LUGPA advocates for reforms to lower healthcare costs, including site-neutral payments, price transparency reform, and the promotion of value-based care.