Significant Changes to Medical Collection Debt Reporting: How Might it Affect Business?

July 27, 2022

In March of this year, the three major nationwide credit reporting agencies (Equifax, Experian, and TransUnion) announced there would be substantial changes to medical collection debt reporting coming this summer in an effort to help consumers faced with unexpected medical bills. The changes will remove nearly 70% of medical collection debt tradelines from consumer credit reports.

The decision was based on months of industry research which showed that around two-thirds of medical debts are the result of one-time or short-term medical expenses arising from acute medical needs or unforeseen circumstances. With the COVID-19 pandemic and an in-depth review of medical debts on credit reports, the credit reporting agencies are making the changes to help people focus on their health—and financial—wellbeing.

The changes will become effective July 1, 2022. Paid medical debt collections will no longer be included on consumer credit reports. Additionally, the time period before unpaid medical debts would appear on the consumer report has been extended from 180 days (6 months) to one year (12 months). This increase in time is expected to give consumers more time to work with their insurance companies and healthcare providers to address the debt prior to it being reported to any credit agency. It is also expected that the credit reporting agencies will no longer include any medical debt under $500 on credit reports, beginning in the first half of 2023. Studies found that most people with medical debt owe less than $500 per medical bill, but it can add up for consumers.

What does this mean for your business? Generally speaking, these changes in credit reporting will have an effect on any lending business or any business that deals with consumer transactions. This includes background checks for job applicants who allow access to their credit report for the hiring process. It will allow those with high medical debts, which even if paid stayed on a credit report for up to seven (7) years, to be approved for credit they otherwise would not have. It will certainly help them rebuild their credit faster once the medical debts are removed. The changes may also open up the housing market and allow those who weren’t otherwise qualified for home loans based on high medical debts to gain approval. For those burdened with high medical debts, it gives some breathing room and potential credit opportunities that were otherwise unavailable to them.

In addition, the extended amount of time to enter into a payment arrangement or make payments to healthcare providers is expected to help the public keep their medical debts out of collections, and even further—off of their credit reports. Sometimes a medical debt would be overdue and in collections before a consumer even knew it was responsible for payment instead of their insurance company. These situations will certainly decrease with this extension of time for consumers to make payment arrangements.

For medical debt collecting attorneys and businesses, the changes are not an industry killer. The changes to medical debt collection reporting only extends the timing for the receipt of the collection. While the overall effect (and hope) is for less medical debt to make it to the collections stage, there will still be consumers who will be unable to pay their medical debts, even with the extension to make payment arrangements from six months to one year. The idea is that once those debts are paid, they will be removed from the consumer’s credit report and no longer “punish” the consumer with seven more years of bad credit. Instead, a consumer will be able to rebuild their credit quicker and receive a benefit from paying off their medical debts. The ultimate goal is that more consumers will have better credit allowing them more opportunities to participate in the credit market.

Disclaimer

The content in the following blog posts is based upon the state of the law at the time of its original publication. As legal developments change quickly, the content in these blog posts may not remain accurate as laws change over time. None of the information contained in these publications is intended as legal advice or opinion relative to specific matters, facts, situations, or issues. You should not act upon the information in these blog posts without discussing your specific situation with legal counsel.