How Medical Debt Reforms Could Affect Your Clients

Medical debt is an issue that affects millions of Americans, leaving many with damaged credit scores and financial instability. Importantly, this is not a problem limited to the uninsured. With today's high cost-sharing amounts on most of the plans we sell, even consumers with health insurance coverage can find themselves facing thousands of dollars in medical debt. 

As the Biden administration introduces new measures to alleviate the impact of medical debt and increase consumer protection, it's essential for health insurance agents to understand these changes and their implications for clients.

A Big Problem

CNBC reports that over half of all debt on credit reports stems from medical expenses, which often are a result of unforeseen emergencies. Given the unique nature of medical debt, many argue that it should not be treated the same as other debt when evaluating creditworthiness. 

In response, the Biden administration has announced several measures aimed at easing the burden of medical debt and increasing consumer protection. These include improving the accuracy of medical debt information on credit reports and reducing the time medical debt remains on credit reports.

From the White House Fact Sheet:

The “Biden-Harris Administration is announcing new actions to protect consumers and lessen the burden of medical debt on American families. Together, these actions will help:

• Hold medical providers and debt collectors accountable for harmful practices;
• Reduce the role that medical debt plays in determining whether Americans can access credit – which will open up new opportunities for people with medical debt to buy a home or get a small business loan;
• Help over half a million of low-income American veterans get their medical debt forgiven; and,
• Inform consumers of their rights.”

Things Are Improving

In addition to the regulatory changes announced by the administration, there are other reasons for consumers to be hopeful. For example, Forbes reported in March of 2022 that billions of dollars of medical debt would be removed from credit reports due to policy changes by major credit bureaus.

Indeed, a joint statement by the three big credit reporting agencies, Equifax, Experian, and TransUnion, confirms three big policy changes:

1. Starting “July 1, 2022, paid medical collection debt will no longer be included on consumer credit reports.”
2. “The time period before unpaid medical collection debt would appear on a consumer's report will be increased from 6 months to one year, giving consumers more time to work with insurance and/or healthcare providers to address their debt before it is reported on their credit file.”
3. “In the first half of 2023, Equifax, Experian and TransUnion will also no longer include medical collection debt under at least $500 on credit reports.”

Additionally, there are a couple bills that, if passed, would make some big changes to the treatment of medical debt.

For example, the proposed Medical Debt Forgiveness Act aims to prevent the accrual of interest and fees on medical debt, limit the use of extraordinary collection actions, and increase transparency in medical billing, according to GoodRx. 

Another initiative, the Model Medical Debt Protection Act, which was introduced by the National Consumer Law Center (NCLC), provides a comprehensive framework for states to adopt in order to protect consumers from abusive medical debt collection practices.

These changes by the credit bureaus, combined with the Biden administration's actions and the proposed legislation, indicate a significant shift in how medical debt is treated in relation to credit scores.

The Role of the Agent

Health insurance agents play a crucial role in helping clients navigate these changes. Here are a couple ways you can help your clients stay up to speed: 

1. Informing clients about new measures and their potential impact on credit scores, which could lead to increased access to loans, housing, and employment opportunities. As stated in the White House Fact Sheet, "These actions will help ensure that medical debt - which can often result from circumstances outside an individual's control - does not unduly harm consumers' credit scores and financial futures.”
2. Providing resources and guidance for clients facing medical debt, including information on their rights and available support services. 
3. Help clients to be proactive by recommending supplemental coverage designed to help reduce exposure to unforeseen medical expenses not be covered by core health insurance. Accident plans and critical illness insurance can fill significant gaps in coverage and help clients avoid being subject to expenses that lead to medical debt.

As these changes are implemented and refined, health insurance agents play a critical role in helping clients navigate the new landscape and build a more equitable strategies that acknowledge the unique nature of medical debt and its impact on financial well-being.