Editorial: Hiding medical debt won’t make it go away

Paying for health care in America is a complicated business. In recent years, the government has taken valuable steps to reduce the harm that unexpected medical bills and unscrupulous debt collectors inflict on consumers. But a newly proposed rule, which would strip all health care bills from credit reports, is a step backward.

Research by the Consumer Financial Protection Bureau has shown that medical debts aren’t reliable indicators of a borrower’s creditworthiness. Still, in 2022 the agency estimated that medical bills amounted to $88 billion of the debt on credit reports. That same year, the three biggest credit-reporting companies and two main credit-scoring companies voluntarily reduced their use of health care debt.

That made a real difference. Within 15 months, the share of consumers with a credit record that included a medical collection fell to 5% from 14%. The remaining 15 million Americans, with a total of $49 billion in outstanding health care bills on credit reports, were disproportionately in low-income areas.

The CFPB’s new proposal would ban lenders from using information about medical debt to inform their credit decisions and prohibit credit-reporting companies from providing such data to lenders. By wiping away any record of these debts, the CFPB estimates that credit scores for those affected would rise by an average of 20 points, enabling lenders to approve about 22,000 additional mortgages every year.

Is that really a good thing? Should thousands of people take out home loans each year without giving their lenders a full picture of their financial condition? Transparency is typically the friend of financial regulators, so it’s odd to see a federal agency proposing less of it.

It’s true that too many medical debts on credit reports are placed there by collection agencies trying to extract money from the wrong people or for bills that were already paid. But in those cases, the CFPB should use its enforcement powers to punish bad actors, as they’ve already done in a couple of recent cases.

More to the point, a significant portion of that $49 billion in debt undoubtedly reflects legitimate unpaid bills from doctors, hospitals, clinics or other health care businesses. Stripping those from patients’ credit reports and scores risks taking away an incentive for them to pay what they owe or to even sign up for insurance plans.

If health care providers can’t count on getting paid for their services — a process already complicated by the U.S.’s tangled insurance industry — they could opt to raise prices or enact more administrative barriers to receiving care. That’s only going to make the accessibility problem worse.

Incurring medical expenses and debt always feels unfair; no one chooses to become sick or injured. But removing any record of these costs doesn’t solve the underlying problem: Too many Americans lack adequate health insurance. In fact, the lack of disclosure could make lenders warier of some of the very borrowers the CFPB is trying to help.

Fixing the costly American health care system should of course be an urgent priority. But it isn’t the job of the CFPB. The agency should focus on doing the important work of protecting consumers, not on rewriting their credit histories.

— Bloomberg