CDS 7-2014
VeriFacts 7-2014
Speech IQ

CFPB’s Ban On Medical Debts From Credit Reports Will Harm Patients

Details
Category: Breaking News - Daily

The CFPB proposed a rule to remove medical debts from credit reports and ban lenders from making lending decisions based on medical information. While the agency aims to “remove medical debts that lower credit scores for Americans,” the rule will harm the very Americans it intends to protect.

 Credit reports—containing debts, payment history, and credit score—are issued by credit reporting companies to assess consumers’ creditworthiness. Lenders rely on credit reports when granting credit cards and loans, offering lower interest rates to consumers with more favorable credit reports.
 The Peterson Center on Healthcare and KFF estimated that 8% of U.S. adults have medical debts, and 86% of medical debts are below $10,000. While some medical debts are caused by billing errors, a sweeping ban on medical debts from credit reports ignores three key facts.

First, excluding any debt from credit reports discourages consumers from paying it. Second, all businesses must get paid one way or another to continue operations. Third, lenders must evaluate a borrower’s creditworthiness before lending money. When the informativeness of credit reports drops, lenders must adopt alternative measures to mitigate their credit risk exposure. Therefore, banning medical debts from credit reports will only yield short-term “protection” for some patients. Subsequent behavioral changes among providers and lenders will harm low-income patients.

Knowing this ban will discourage patients from paying medical bills, providers will seek alternative ways to protect their revenues, such as requiring upfront payments, limiting access to care, and raising prices. Both large providers, such as hospital systems, and small ones, like independent physician practices, will face challenges, especially the latter with financial vulnerabilities. This dynamic will accelerate the acquisition of small providers.

This ban forces credit reporting companies to exclude relevant information from their reports, thus reducing the reports’ value to lenders. As a result, lenders will place less weight on credit reports and seek alternative information channels when evaluating the creditworthiness of potential borrowers, such as resorting to specific demographic or geographic profiles. Taken together, all low-income individuals will face greater barriers to accessing both healthcare and credit, including those who have diligently built their creditworthiness through continuous payment efforts and would otherwise deserve lower borrowing costs. Patients with medical debts will only enjoy temporary relief at best, which has been found to bring “no improvements in financial well-being or mental health.”

Instead of suppressing symptoms, we should focus on treating the root causes—high healthcare prices and low personal income. To read more click here.