Changes In Reporting Medical Debt Improving Many Americans’ Lives

A series of changes in how major credit bureaus are reporting medical debt is having a positive impact on credit scores, but don’t get too excited, this doesn’t mean an end to medical debt. 

In July 2022, the credit bureaus removed paid medical collections from credit reports and stopped reporting unpaid medical collections until those debts were one year old, as opposed to the previous six-month grace period. 

In August 2022, it was announced that medical debt in collections would no longer be used in calculating Vantage scores, one of the country’s most used credit scoring models. 

In addition, beginning in April 2023, medical collections under $500 no longer appear on consumer credit reports.

Medical Debt the Big Whammy

For the past decade, medical debt has constituted most of the debt in collections on consumer credit reports, lowering consumers’ credit scores and limiting their access to loans and other credit. Even though medical debt is a poor predictor of a person’s credit risk in many cases, it simply reflects problems navigating complex healthcare billing and insurance reimbursement processes—having these debts in collections may also affect a person’s ability to obtain insurance, find a job, or rent a home.

Analysis of the Urban Institute’s credit bureau data, finds these reporting changes have already erased medical debt in collections from most consumers’ credit reports. The share of consumers with medical debt In collections was 12.6% in February 2022.  In recent months, only 5.0% percent of adults have medical debt in collections on their credit reports with more than 15 million consumers having had all their medical debt in collections erased from their files in the past year.  

The credit bureaus’ recent actions may have also affected many consumers’ credit scores. Since the changes went into effect, consumers who had medical debt collections in August 2022—about 27 million adults—experienced a significant improvement in their Vantage scores. From August 2022 to August 2023, their average score increased from 585 to 615 points, moving these consumers from a subprime level (below 600) to near prime level (between 601 and 660). In contrast, consumers without medical debt in the records in August 2022 experienced almost no change in their credit scores by August 2023 (from 712 to 711).

These results provide insight into the potential of further restrictions on medical debt reporting, including the Consumer Financial Protection Bureau’s recent announcement of a proposed rulemaking process to remove all remaining medical debt from credit reports. 

Change Does Not Eliminate This Debt 

Under these policies, the share of adults with medical debt on their credit records will continue to fall, and their credit scores based on other scoring models will likely continue to rise. However, these reporting changes don’t affect the underlying debt consumers owe to health care providers. 

With some exceptions, hospitals, other providers, and collection agencies can still sue patients to collect on unpaid medical bills. Reducing the burden of medical debt and its wide-ranging consequences would likely require health insurance reforms that build on the Affordable Care Act to further protect consumers from out-of-pocket medical expenses they can’t afford.

It will also be important to monitor provider billing and collection practices in response to concerns that removing medical debt from credit reports could have unintended consequences, such as increased efforts among providers to obtain upfront payment before delivering care or reliance on other collection strategies.