Is Medical Debt Hurting Your Credit? Here's How That Could Change in 2024

Medical debt is nasty. It's bad enough dealing with chronic illness or cancer without the added worry of how you'll pay your health bills. Not only can the stress of medical debt interfere with patient recovery, it can also have its own health consequences. The Consumer Financial Protection Bureau (CFPB) says, "Medical debt can cut patients off from the healthcare services they need."

If you haven't personally struggled to pay a medical bill, you likely know someone who has. In a recent YouGov poll, 67% of respondents said they are concerned about affording medical care. And 2022 research by the CFPB showed that medical debt affects more than 1 in 5 Americans.

Millions of Americans can have medical debt removed from their credit reports

The good news is that there have been significant shifts in how credit agencies handle medical debt in recent years. The credit bureaus will no longer keep medical debts that are less than a year old or those that have been paid on people's credit reports. In April, they also removed records of medical collections for less than $500. The CFPB wants to see even more progress in 2024.

Even now, if medical debt is dragging down your credit score, you may be able to get it removed. Check your credit reports. You can get a free copy of your report from each of the three credit bureaus every week from AnnualCreditReport.com. If any of the following are listed on your report, file a dispute with the agency:

• A medical debt in collection that's less than $500
• A medical debt in collection that's less than a year old
• A paid medical collection that's still on your report

According to Urban Institute research, more than 15 million people had had medical debt in collections erased from their credit reports as a result of the recent changes. It estimates that the percentage of Americans with medical debt in collections has fallen from 16% in August 2018 to 5% in 2023.

Medical debt could soon stop impacting your credit -- period

Your credit report gets used to calculate your credit score. In theory, your score shows potential lenders how well you might deal with any money people lend you. It impacts what credit card you might be able to qualify for, as well as the terms you might get on a loan, or rates you might pay on your insurance.

But the CFPB argues medical debt isn't a good indicator of a person's ability to handle credit. In part because medical costs are often unpredictable and costly.

The bureau also points out that there are often mistakes in medical billing. The way these bills work is complex and there can also be disputes over insurance payments. According to a survey by KFF, 43% of people have received a medical or dental bill with a mistake in it. In short, millions of Americans are being chased for money they may not even owe.

This is why the CFPB is pushing for even more change in medical debt reporting in 2024 and beyond. It wants to see credit bureaus do the following:

• Take medical bills off credit reports altogether: If the new rules go through, the credit agencies wouldn't be able to include medical debts and collection information on your report at all.
• Ensure medical bills don't impact loan applications: The proposals would stop creditors from using medical collection information when evaluating your creditworthiness.
• Stop debt collectors using credit reporting to force medical debt payments: Right now, debt collectors can use the threat of potential credit score damage as a way to pressure people to pay.

What to do if you can't pay a medical bill

The cost of copays and deductibles means that health insurance often only provides limited protection against medical costs. If you've been hit with a medical bill and you don't have enough cash in your bank account to pay it, try not to panic. Here are some steps you can take.

1. Check the bills for accuracy

Medical bills can be hard to decipher, but it's important to check you've been charged correctly. Review the charges, particularly whether you received the services you're being billed for and there aren't any double charges. If anything isn't clear, don't be afraid to ask questions.

2. Talk to your medical provider

If you can't pay your bill, the sooner you talk to the billing department at your hospital or medical center, the better. You may be able to negotiate a lower rate, particularly if you research average costs of similar procedures before you call. Find out if you can set up a payment plan, which would let you pay what you owe in installments rather than a lump sum.

3. Look for financial assistance

Ask if the hospital can connect you with any form of charity care or help. Legally, nonprofit hospitals are required to offer financial assistance programs. A number of for-profit hospitals also offer charity care. There are also a number of health charities operating at local and national levels, such as NeedyMeds or the HealthWell Foundation. Some states will retroactively apply Medicaid coverage, so if you are part of a low-income household, see if you qualify.

Bottom line

If you have medical bills you can't pay, you are not alone. Health System Tracker analysis of census data last year showed that Americans owe around $195 billion in medical debt. The proposed CFPB changes wouldn't eliminate the debt. But they would mean that having unpaid medical bills wouldn't impact your ability to get a job or qualify for a mortgage loan, which is a step in the right direction.