WASHINGTON, D.C. – Today, U.S. Senator Bob Menendez, along with Senators Jeff Merkley (D-Ore.), Richard Blumenthal (D-Conn.) Dianne Feinstein (D-Calif.), Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill.) and Maggie Hassan (D-N.H.) introduced the Medical Debt Relief Act. This legislation would prevent medical debt from continuing to damage consumers’ credit scores after it has been paid off or settled, ensuring that otherwise-creditworthy consumers are able to find affordable credit to buy a home or a car or take out a loan.
Medical debt is unlike other types of debt. As opposed to credit card debt or loans that consumers take on willingly, medical debt is often the result of unexpected accident or illness that is outside the consumer’s control. Additionally, due to complex medical billing systems and the potential for misunderstandings with health insurance companies, medical bills are often sent to collections before it is clear whether it is the consumer or the insurer who owes money to the health care provider.
“All the financial planning in the world can’t prepare any middle class family for a sudden medical emergency or unforeseen illnesses – and the bills that come with them,” Sen. Menendez said. “Hardworking families are punished for being sick even after their medical debt is paid or settled and the damage to their credit scores can follow them for years, whether it’s being denied a mortgage or getting saddled with a higher interest car loan. If we can’t predict when a medical accident happens, we shouldn’t penalize a consumer for having one. Now it’s my hope that Congress can do the sensible thing, pass our bill, and make a difference in the lives of millions of working families hit hard by medical debt.”
The Consumer Financial Protection Bureau has found that 43 million American consumers have overdue medical debt on their credit reports, and that 15 million have only medical debt on their credit reports. Many consumers mistakenly believe that unpaid medical bills have no influence over one’s credit score. However, once a debt is assigned to collections, even if the cause was an inefficient healthcare billing system, the account will be considered a derogatory account by credit scoring algorithms.
Due to the atypical nature of medical debt, the predictive value of medical accounts on credit reports is low. Credit reporting companies have testified before Congress that removing medical debt from consideration would not harm the predictive value of consumer credit reports.
The Medical Debt Relief Act would ensure that medical debt that is paid off or settled by a consumer is promptly removed from a credit report rather than haunting their credit score for years after.
The full text of the Medical Debt Relief Act can be found here.