BACKGROUNDER: Biden Administration Announces New Measures to Ease Medical Debt Burden and Increase Consumer Protection

Vice President Kamala Harris will announce reforms in four areas to ease the burden of medical debt, giving more American families the opportunity to thrive

Today, as part of the fight to help Americans with high costs, the Biden-Harris administration is announcing new actions to protect consumers and ease the burden of medical debt on American families. Together, these actions will:

  • Hold medical providers and debt collectors accountable for harmful practices;
  • Reducing the role that medical debt plays in determining whether Americans can access credit – which will open up new opportunities for people with medical debt to buy a home or get a small business loan;
  • Help over half a million low-income US veterans get their medical debt forgiven; and,
  • Inform consumers of their rights.

One in three adults in the United States has medical debt. It is now the biggest source of debt in collections, more than credit cards, utilities and car loans combined. Black and Hispanic households are more likely to hold medical debt than white households.

Medical debt is not just a financial problem, it can also have negative health effects. A study found that almost half of people with medical debt intentionally avoided seeking treatment.

Falling ill or caring for loved ones shouldn’t mean financial hardship for American families. That’s why the Administration is taking new steps to ease the burden of medical debt and protect consumers from predatory collection policies. These actions are based on the presidential decision of April 5and Executive Order on Strengthening Access to Affordable, Quality Health Care Coverage, which directed federal agencies to take steps to reduce medical debt burdens.

Today, Vice President Harris is announcing reforms in four areas that will reduce medical debt burdens, protect consumers and open up new opportunities for Americans looking to buy a home or start a small business.

Empower suppliers and collectors

When families cannot afford the cost of care – often because they are uninsured or underinsured –suppliers have a responsibility offer non-predatory payment plans or financial assistance to all eligible patients. While many do, far too many eligible patients report not receiving help. Worse, lawsuits against patients for medical bills are on the rise. And when hospitals sell unpaid bills to third-party debt collectors, patients can be subjected to persistent and aggressive collection practices.

The federal government contributes approximately $1.5 trillion per year to the health care system to provide patients with quality care and services. Providers receiving this funding should make it easy for eligible patients to receive the financial assistance to which they are entitled and should not directly or indirectly subject patients to illegal and harassing debt collection practices.

Today, Secretary Becerra is leading the Department of Health and Human Services (HHS) to assess the impact of provider billing practices on access and affordability of care and the accumulation of medical debt. HHS will request data from more than 2,000 providers on medical bill collection practices, patient lawsuits, financial assistance, financial product offerings, and 3rd practices for contracting with parties or purchasing debt. The Department will, for the first time, evaluate this information in its grant-making decisions, release leading data and policy recommendations for the public, and share potential violations with relevant law enforcement agencies.

Separately, the Consumer Financial Protection Bureau (CFPB) will investigate credit reporting companies and debt collectors who violate patient and family rights, and hold violators accountable. The CFPB has already published a newsletter to prevent the illegal collection and reporting of medical debts. The CFPB will target coercive credit reports and determine whether unpaid medical billing data should ever be included in credit reports.

Improve government underwriting practices

the latest searches finds that having medical debt is not a reliable predictor of overall financial health. A analysis of 5 million anonymized credit files revealed that consumers who had medical debt paid their bills at the same rate as those who did not. In fact, the inclusion of repaid medical debt leads to lower credit scores. underestimate solvency of 22 points. Therefore, the inclusion of medical debt in credit reports and in credit scores and loan underwriting may prevent Americans from accessing financial opportunities while not improving the accuracy and predictability of loan programs.

The private sector has taken important steps to address this problem. Last month, the three largest credit reporting agencies – Equifax, Experian and Transunion – announced that they would no longer include certain forms of medical debt in credit reports, eliminating billions of dollars in debt from consumer reports. This change covers borrowers with debts already paid, debts outstanding for less than one year, and debts paid or unpaid for less than $500.

However, this change leaves out a third of Americans with medical debt over $500. For example, 11 million Americans have a medical debt over $2,000 and 3 million Americans have a debt over $10,000. Additional measures are needed to help families struggling with medical debt.

The Biden-Harris administration is committed to leading the way. The federal government is one of the largest players in the consumer credit markets, directly providing tens of billions of loans each year to millions of Americans and guaranteeing or owning up to 70% of all mortgages. Government action matters. Americans with medical debt can apply for an FHA-backed mortgage without fear that medical debt will prevent them from buying a home. FHA – who supports over 12% of new home purchases in America – removed medical debt from consideration when assessing a borrower’s creditworthiness.

That is why today the Administration is announcing actions that go beyond recent private sector announcements.

Biden-Harris administration provides guidance to all agencies to eliminate medical debt as an underwriting factor in credit programs, to the extent possible and in accordance with the law. Medical debt is not a reliable indicator of credit quality, and its impact should be reduced or eliminated to give more American families the opportunity to thrive:

  • Americans with medical debt can apply for USDA Rural Housing Services loans without worrying that their medical debt will prevent them from getting a mortgage. Today, the USDA is announcing that it will stop including all recurring medical debt in borrower repayment calculations, which measure a borrower’s ability to repay homeownership programs.more than 20 billion dollars in the lending business.
  • The Department of Veterans Affairs has taken several steps to ensure credit reporting and underwriting regarding medical debt, including finalizing a rule to virtually cease reporting medical debt for veterans with VA Care bills. VA will also review its underwriting guidelines to ensure that we minimize or eliminate medical debt reporting as an indicator of creditworthiness, where possible.
  • The Small Business Administration has a demonstrated commitment to ensuring access to credit and a vested interest in accurate credit reporting and underwriting. To continue this commitment, the SBA will work with colleagues and partners to reduce the financial burden of medical debt for families and to review SBA loan programs to identify ways to reduce the negative impact of debt. medical on access to capital for small businesses.
  • The FHFA is reviewing the credit models used by Fannie Mae and Freddie Mac and looking for ways to ensure credit metrics are accurate, reliable, and predictive.

To reinforce these measures, the Office of Management and Budget (OMB) will issue new guidance to agencies to, where possible and in accordance with the law, eliminate medical debt as an underwriting factor in credit programs. , or reduce its impact.

Support veterans in financial difficulty

Since the start of the pandemic, VA has canceled or refunded approximately $1 billion in copayments to more than 1.5 million veterans. The American Rescue Plan (ARP) eliminated all out-of-pocket medical expenses for veterans enrolled in VA health care and provided much-needed financial assistance to veterans in economic hardship during the COVID-19 pandemic.

Veterans Affairs (VA) will now make it easier and faster for low-income veterans to get their VA medical debt forgiven. Currently, financially challenged veterans who need medical debt relief from VA must fill out a complex paper form with complicated eligibility requirements. The application process is confusing, time-consuming, and as a result veterans may be deterred from seeking much-needed help. To address these issues and ensure veterans get the help they deserve, VA will streamline the application process, including providing an online option to apply, and establish a simple income threshold to qualify for help. .

VA also released a final rule under which it will virtually stop reporting adverse debt, including medical debt, to consumer reporting agencies. The new rule ensures that reported debt better reflects creditworthiness, while saving veterans from further financial hardship simply because they had to incur medical debt.

Help consumers know their rights

The CFPB will step up its consumer education tools aimed at helping American families navigate the complex and often confusing landscape of medical billing, including more materials specifically designed to help patients access the financial assistance they need. they are entitled.

The CFPB has a wide range of tools to help patients and their families dealing with medical billing and collections, particularly issues related to debt collection and credit reporting, consumerfinance.gov. Individuals experiencing aggressive debt collection, coercive credit reporting, or other issues with a consumer financial product or service related to medical billing and collection may file a complaint with the CFPB at consumerfinance.gov/complaint.

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