Federal Court Reverses Federal Medical Debt Protections

This month, a federal court blocked a rule that was designed to protect people with medical debt by keeping it off credit reports and out of credit decisions. This means that credit reporting agencies and lenders are again free to use unpaid medical bills when determining credit worthiness—a practice that especially harms people with high medical needs and expenses.

CFPB Rule Overturned in Court

Early this year, just before President Biden left office, the Consumer Financial Protection Bureau (CFPB) finalized a rule that barred the inclusion of medical debt in credit scores or from appearing on credit reports. It also barred prospective creditors from using medical debt to decide whether an individual was qualified for credit. CFPB said that 15 million Americans would see $49 billion in medical debt removed from their records as a result. A lawsuit followed immediately, arguing CFPB had exceeded its authority, and, under the Trump administration, the agency changed direction. Instead of defending the rule in court, the agency agreed with plaintiffs that the rule should be blocked, and the court agreed.

Medical Debt Common, Even for Insured

Most people 65 and older have Medicare coverage. But even so, CFPB data show that nearly four million people in that age bracket had medical bills that they were unable to pay in full in 2020. That year, older adults had $53.8 billion in unpaid bills. This burden was not evenly spread; people with unpaid bills were more likely to be older adults of color, to be in poor health, to have other debts, or to have incomes between 100 and 200% of the federal poverty level.

This echoes previous KFF research on the prevalence and consequences of medical debt among Medicare beneficiaries, which found more than one in five adults aged 65 and older had debt due to their own or someone else’s medical expenses. Even relatively small debts had lasting consequences. Nearly 30% of beneficiaries with unpaid medical or dental bills were contacted by a collection agency, and 23% said health care debt negatively affected their credit score.

For many with health-related debt (62%), the resulting financial instability caused them to avoid or delay care due to cost. Forty-eight percent postponed medical appointments, 31% did not get doctor-recommended tests or treatments, and 28% did not take a prescription medication as directed. Other spending shifted as well. Two in five (42%) cut back on household items, food, or clothing; 39% depleted all or most of their savings; 31% increased their credit card debt for non-medical purchases; and one in five took out a loan (21%) or did not pay other bills (18%).

Credit Reporting Agency Actions

Other research also shows the prevalence of health care debt, especially for people who are un- or underinsured. And some hospitals and other providers use the threat of credit reporting as bills go into collections. Such credit reporting can drive homelessness and other financial catastrophes.

The three major credit reporting agencies have voluntarily limited the amount of medical debt they include on credit reports for several years but they still report some information and retain the option to reverse course.

Some Prohibitions Remain, but No Federal Solution

Fifteen states have also prohibited medical debt reporting, though the states vary in whether they allow creditors to use medical debt to assess credit worthiness.

The CFPB rule would have eliminated this reporting and use, better protecting people with large debts and barring the agencies from reversing course and choosing to start reporting all medical debt again.

Risks to Affordability Rising

This disappointing reversal comes at a time when coverage and affordability are even more at risk due to projected hikes in Affordable Care Act (ACA) marketplace premiums, budget bill monetary and coverage cuts for Medicaid, Medicare, and the ACA, federal debt–triggered Medicare cuts, and other factors.

Medicare Rights supported the CFPB rule and other actions to protect people from harm from high medical costs and debt. We urge all states to put laws in place to eliminate medical debt reporting and use while recognizing that medical debt is a symptom of larger problems with health care affordability which can drive people to delay or go without needed care. People with all forms of insurance, including Medicare, need better coverage, financial protections, and lower out-of-pocket costs. Those who are uninsured need affordable, high-quality, and accessible coverage options to support their well-being and financial security.

Further Reading

Read more about the rule and the court’s decision.

Read more about the effects of medical debt on older adults.