Medical Debt Reporting - CFPB scrutinizing $88B on credit reports

[NotAMouse]

Hey there, Not A Mouse here!

For those that don’t know my background, I work for a financial institution - systems admin manager for all of our lending technology. As such, I receive government notices usually before they hit the general public (these are not confidential, don’t worry - I am just the first group to receive distribution of these releases directly from the Gov entities). The CFPB sent out a whitepaper this morning regarding medical bills on credit reports. Full disclosure - I understand the implication of how this can affect underwriting guidelines in the lending community, but I’m not creative enough to wrap my head around what this means for the medical/billing/insurance world. If anyone can step in to fill my knowledge gap there, it would be much appreciated! Here’s the downlow:

FOR IMMEDIATE RELEASE:
March 1, 2022
Office of Media Relations
press@cfpb.gov

CFPB Estimates $88 Billion in Medical Bills on Credit Reports

Inaccurate medical billing data contaminates credit reporting system

Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today released a report highlighting the complicated and burdensome nature of the medical billing system in the United States. The report reveals that the U.S. healthcare system is supported by a billing, payments, collections, and credit reporting infrastructure where mistakes are common, and where patients often have difficulty getting these errors corrected or resolved.

“When it comes to medical bills, Americans are often caught in a doom loop between their medical provider and insurance company,” said CFPB Director Rohit Chopra. “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.”

Today’s report details how medical bills are often incurred through unexpected and emergency events, are subject to opaque pricing, and involve complicated insurance or charity care coverage and pricing rules. In emergency situations, patients might not even sign a billing agreement until after receiving treatment. In other instances, patients, including those with chronic illnesses or who are injured or ill, may desperately feel that the need for medical care forces them into accepting any costs for treatment.

When those bills end up in collections, the repercussions can be far-ranging. Medical bills placed on credit reports can result in reduced access to credit, increased risk of bankruptcy, avoidance of medical care, and difficulty securing employment, even when the bill itself is inaccurate or erroneous. The report outlines how these repercussions are especially acute for people from Black and Hispanic communities, as well as people with low incomes, veterans, older adults, and young adults of all races and ethnicities.

The report describes challenges and sources of confusion when a person’s medical bills go into collection or are placed on a credit report. Bills may be sent to collectors by doctors, hospitals, parent companies, or groups representing a service provider, so there may be multiple charges for the same visit. The total billed amount can quickly become unrecognizable, and the time and effort needed to parse legitimate charges from inaccurate ones can become unmanageable.

Among the other key findings of the report:

• Medical debt affects tens of millions of households: Roughly 20% of U.S. households report that they have medical debt. The CFPB found that medical collections tradelines appear on 43 million credit reports. As of the second quarter of 2021, 58% of bills that are in collections and on people’s credit records are medical bills.
• COVID-19 has made the situation worse: Both uninsured and insured patients incurred substantial costs to cover COVID-19 related services, including testing and hospitalization. To the extent people deferred routine care during the pandemic, costs and medical debt are expected to increase post-pandemic.
• Medical debt affects households unevenly: Past-due medical debt is more prevalent among Black (28%) and Hispanic (22%) individuals than white (17%) and Asian (10%) individuals. Medical debt is also more common in the Southeastern and Southwestern U.S., in part because states in those regions did not expand Medicaid coverage.
• Medical debt weakens underwriting accuracy: Previous research by the CFPB has shown that medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations. Some newer credit scoring models weigh medical collections tradelines less heavily, with dramatic effects; an updated FICO model resulted in an average 25-point increase in consumers’ scores. However, there has been very little adoption so far, and the most widely-used models use the older, less accurate approach. As a result, people with medical debt, who are disproportionately Black and Hispanic, continue to be penalized with lower credit scores.

The CFPB will act to ensure that the consumer credit reporting system is not used coercively against patients and their families to force them to pay questionable medical bills. Specifically, the CFPB intends to:

• Hold credit reporting companies accountable: Federal law requires credit reporting companies to have reasonable procedures in place to assure that medical debt on consumer reports is accurate. Those procedures must include, if necessary, taking action against furnishers who routinely report inaccurate information. If furnishers, of medical debt or otherwise, are contaminating the credit reporting system with inaccurate reports, the CFPB expects the Big Three agencies to cut off their access to the system.
• Work with federal partners to reduce coercive credit reporting: The CFPB is working with the U.S. Department of Health and Human Services to ensure that patients are not coerced into paying bills more than the amounts due. In January, the CFPB issued a compliance bulletin that reminded debt collectors, credit reporting companies, and others that it is illegal to collect or report as owing a debt that is not legally due and owing, including where the billed amount violates the No Surprises Act. The CFPB also supported recent changes by the Department of Veterans Affairs that will reduce financial distress for veterans by requiring all other methods of debt collection to be exhausted before a veteran’s bill is reported to the credit reporting agencies. The CFPB will also further investigate, in cooperation with its federal partners, how best to facilitate patients’ access to financial assistance programs offered by medical providers.

Determine whether unpaid medical billing data should be included in credit reports: The CFPB will conduct additional research on how medical billing, collections, and credit reporting practices affect patients and families. Informed by those findings, the CFPB will assess whether consumer credit reports should include data on unpaid medical bills.

[NotAMouse]

Further remarks from CFPB Director Chopra surrounding this. To my recollection, I have not seen him issue a separate statement like this before, outside of an original press release. It was interesting to receive additional remarks from him:

FOR IMMEDIATE RELEASE:
March 1, 2022
Office of Media Relations
press@cfpb.gov

Prepared Remarks of Director Rohit Chopra on New CFPB Medical Debt Report

Good morning. Today, the CFPB released a report on medical billing and collection practices in our country. Medical bills are the most common debt in collections reported on our credit reports. Our own review suggests that roughly 43 million people had medical bills on their credit report, in June 2021, with the total outstanding amount around $88 billion.

In theory, credit reports are supposed to be an accurate repository of data about whether you have met your obligations on loans you have taken out. This theory is far from reality. To make things worse, credit reports include items like unpaid medical bills, where patients frequently do not know what services will be performed and what they will be charged.

For many patients, it can feel like full-time detective work to understand procedure codes, whether something was in-network vs. out-of-network, or inpatient vs. outpatient. Many procedures include separate bills from providers and facilities. Payment assistance programs, required by law as a condition of the nonprofit status of many hospitals, are sometimes not well advertised, and they can be hard to access. Complex and confounding medical billing practices make it impossible for patients and their families, already struggling with the stress and anxiety of the need for medical care, to ascertain the accuracy of the bills.

In the United States, it is all too common for patients and their families to be caught in a doom loop between their provider and their insurance company. Even when a patient tries to battle to get an accurate bill or an insurance claim paid, medical debt collectors have a weapon that is hard to fight against: the credit report. I am concerned that the credit reporting system is being weaponized as a tool of coercion to get people to pay medical bills they may not even owe.

Coercive credit reporting forces patients and their families to pay bills whose accuracy they doubt. And, for those families who refuse to pay a bill whose accuracy they question, they can find their credit ruined and their prospects for employment and housing dimmed.

In many ways, it’s hard to call medical debt a real debt. Few people choose to take on medical debt, and typically, patients have no idea how much they will be charged for a service or a procedure. There’s no upfront disclosure or interest rate to compare. Individuals and families must confront a billing and collections system that can be best described as error-plagued, confusing, and labyrinthine.

The scope of these problems is extraordinary: our report published today estimates that 58% of the debt that is in collections and on people’s credit records stems from medical bills.

Having a medical debt collection mark on a credit record can make it harder to get credit, rent or buy a home, or find a job. Families are pushed into bankruptcy by medical debts that they cannot pay.

Coercive credit reporting to obtain payments on medical debt can also deter families from seeking needed medical care. Coercive credit reporting interferes with the relationship between patients and their doctors and can lead to worse medical outcomes.

The CFPB will be taking several steps in light of the report:

First, we will be closely scrutinizing the Big Three credit reporting agencies to ensure that they are not being used as a tool to coerce and extort patients on medical bills they may not even owe. The law requires Equifax, Experian, and TransUnion to follow reasonable procedures to assure maximum possible accuracy of the information they collect and disseminate about each of us. They are responsible for guarding against contamination of the credit reporting system with unsubstantiated and inaccurate reports of debt allegedly owed. We expect them to take seriously their role as major actors in the credit reporting system—a system whose integrity and accuracy can determine the financial futures of hundreds of millions of people. If furnishers, whether of medical debt or otherwise, are polluting the system with inaccurate information, we will expect the Big Three to cut off their access to the credit reporting system.

Second, the CFPB will work with other government agencies to determine whether it is appropriate to include medical debt in their own underwriting and role in credit reporting. I am grateful to our Secretary of Veterans Affairs Denis McDonough for working with the CFPB on a new rule that will dramatically reduce the number of medical debts subject to credit reporting for veterans. The VA’s rule requires all other methods of debt collection to be exhausted before the bill is reported to the credit reporting agencies, thus ensuring that the credit reporting system is not used as a tool of coercion. This sets an important standard for other medical providers to meet. We intend to continue our work to ensure that government policies aren’t the source of these harms to families and patients. We are interested in what more government can do to make sure patients can exercise their rights to access financial assistance programs and payment plans, as well as obtain validation of debts allegedly owed.

Finally, we will be assessing whether it is appropriate for unpaid medical billing data to be included on credit reports altogether. We already know how a medical bill reported on credit reports is less predictive of future repayment than reporting on traditional credit obligations. We will make this determination while also taking steps to reduce harmful and inaccurate credit reporting.

For example, we will partner with the Department of Health and Human Services to ensure patients are not charged and do not pay illegal surcharges for medical care, as we did with our recent action on the No Surprises Act in January. We will also investigate how best to facilitate patients’ access to financial assistance programs offered by medical providers. Our long-term determination on whether it is appropriate for credit reporting agencies to include so-called medical debt on consumer credit reports will also be informed by additional research on medical billing, collections, and reporting.

On a broader scale, the contamination of the system by coercive credit reporting makes it harder for lenders to fairly and responsibly price credit, based on actual default risk.

Earlier this year, we issued a bulletin on medical debt and explained that debt collectors should only collect and report debt that is in fact legally due and owed. This is a basic precept of the law, and we will continue to ensure that families are not harmed for bills not due.

I also look forward to discussions with the business community, including hospitals, labs, outpatient facilities, payors, and practitioners to identify ways we can reduce the stress of medical debt and coercive credit reporting. Many in the health care community have already taken steps to avoid this behavior and to work constructively with patients before launching an assault on their credit report.

The pandemic has exposed how quickly our country and our lives can change. As we look to recover, it will be critical that we ensure that patients seeking care do not find their financial lives ruined. I expect that we will report further on any additional efforts to combat coercive credit reporting this summer.

Thank you.

[DankeDeNada]

Have you gotten any recent information on average national credit card debt since this was posted? Thinking there’s a play here with inflation mounting up peoples credit card debt.