New York State recently passed a law prohibiting all medical debt from being reported to a credit bureau.
This is the most sweeping law in the nation, and it raises one big obvious question: If consumers know that unpaid medical debt won’t ding their credit, does this completely remove their incentive to pay?
People of course pay medical bills routinely, even if they are wildly inflated, as many medical bills are. And it is possible that the fact that unpaid medical debt lived on your credit report was a factor in your decision to pay.
“If your credit is not impaired, you have access to all kinds of resources,” said Doug Aldeen, an Austin, Texas, healthcare law expert. “It’s unbelievably awful that you can leverage someone’s ability to borrow money, based on a bill that isn’t even real.” But this law changes that.
Your credit report governs your ability to borrow money to buy a house or car, get a low interest rate on a credit card, buy insurance and perform any of dozens of other financial transactions — up to and including getting a job, if a prospective employer checks a credit report. With no black mark because of medical debt, a person’s financial life can become a lot easier.
A creditor can still sue you for an unpaid bill, Aldeen said, but you’d be likely to have to pay “the reasonable value,” which is much less than the inflated sticker price that is seen on many medical bills, Aldeen said.
Before the law passed, the Community Service Society of New York documented the state of New York medical debt in a series of reports. Medical debt contributes to housing insecurity, for example, when hospitals file liens against homes in an attempt to collect debt.
Other states
So why don’t other states have similar rules? “Every state should — it would literally change their whole market dynamics,” he said.
Colorado has a similar law, he said, but it is conditioned on 100 percent compliance with healthcare price transparency. So far that compliance has not been achieved broadly, he said.
The Colorado law is fairly recent, and it puts the burden on the consumer to know if her credit report is faulty, KOAA-TV reported.
KOAA reported: “’You can go to annualcreditreport.com to get copies of your credit reports and review them to see if your medical information is still on there,’ Julia Char Gilbert, Connelly Policy Advocate Colorado Center on Law and Policy told our news partners at Denver 7. ‘If you do see an error, like if your medical data is still showing up even though this new law prohibits that you have the right to take action and file what’s called a dispute.’ If you review your credit report and do find medical debt is still being included, you can file a dispute with the credit bureaus over the phone, online, or by mail.”
Minnesota has a relatively new law requiring hospitals to check if patients are eligible for financial assistance before sending a medical debt to collections.
Washington, Oregon and California require that a hospital provide charity care if a person reaches 300 or 400 percent of the federal poverty level (FPL), as calculated on income and household size, Aldeen wrote in a LinkedIn post discussing the issue. “WA, OR and CA require charity care at 300-400 percent of the FPL. A family of four that earns $120,000 [adjusted gross income] is 400 percent of the FPL. About 85 percent of the US fits in this bucket,” he wrote.
So it is entirely possible that you don’t owe the money to the hospital — if your income is low enough, and if you know enough to ask for “charity care” or “financial aid.”
State protections against medical debt actions are collected in this map from the Commonwealth Fund. The National Consumer Law Center has this map on what can and cannot be affected by a medical debt lawsuit — your home, your paycheck, your car, your bank account.
The National Consumer Law Center collects consumer debt advice and expert tips, including articles about medical debt. The Consumer Financial Protection Bureau also has consumer tools on debt protection. For many people, if your income is below the federal poverty level, you qualify for financial aid. Dollar For is a nonprofit that helps in applying for financial assistance.
Not the first step
Of course this is not the first step to address the presence of medical debt on people’s credit reports.
In July 2022, the major credit bureaus — Equifax, Experian and TransUnion — removed medical bill reports that had been paid from credit reports, and stopped reporting any medical bills that were less than a year old. They also said that in April of 2023, they would remove medical debt amounting to less than $500 from consumer credit reports.
“Medical debt has constituted most of the debt (PDF) in collections on consumer credit reports for the past decade, lowering consumers’ credit scores and thus limiting their access to loans and other credit,” The Urban Institute reported in November 2023. “Even though medical debt is a poor predictor of a person’s credit risk (PDF) — in many cases, it simply reflects problems navigating complex health care 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.”
The Urban Institute said the number of Americans with medical debt on their credit reports dropped from 16% in August 2018 to 12.6% in February 2022. By August 2023, only 5% of adults had medical debt in collections on their credit reports, the institute added.
The Consumer Finance Protection Bureau has instituted a rulemaking process to end coercive debt collection, clean up inaccurate data and improve credit score predictiveness. That process is still underway.
Not surprisingly, the debt collection industry does not approve of the C.F.P.B. actions, saying they don’t go to the root cause of medical billing practices.
New York and lawsuits
New York has some other consumer-friendly practices. Gov. Kathy Hochul said in early 2024 that she wanted to limit hospitals’ ability to sue patients earning less than 400% of the federal poverty level, $120,000 for a family of four.
“More than 700,000 New Yorkers have medical debt in collections. Individuals with medical debt are less likely to seek necessary medical care and report being forced to cut back on critical social determinants of health, including food, heat, and rent,” a press release said on Jan. 2.
The press release said the proposed legislation would also expand hospital financial assistance programs for low-income New Yorkers, limit the size of monthly payments and interest charged for medical debt and put into effect other protections to improve access to financial assistance and reduce the effects of medical debt on New Yorkers.
