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    Tuesday, July 16, 2024

    Medical debt will no longer be reported for credit scores in Conn.

    Medical charges are seen in Temple Hills, Md., Monday, June 26, 2023. The Consumer Financial Protection Bureau said Tuesday, June 11, 2024, it is planning a rule that would remove medical bills from credit reports and prevent lenders from making decisions based on medical information. (AP Photo/Jacquelyn Martin, File)

    Medical debt may be removed from credit reports of more than 15 million U.S. residents, according to a proposal the office of Vice President Kamala Harris and U.S. Consumer Financial Protection Bureau announced Tuesday.

    This action would raise the resident's credit scores by an average of 20 points and lead to the approval of about 22,000 additional mortgages every year, according to the press release. It's similar to practices already happening in Connecticut and that were codified in the most recent legislative session.

    "We know that access to housing, access to transportation, access to a well paying job, all of those things are really important to your health, and your credit affects your ability to access many of those things," said Paul Kidwell, senior vice president of policy at Connecticut Hospital Association.

    Medical debt is the most common kind of debt collected on credit reports, making up 58 percent, according to the bureau. As of June 2021, there was $88 billion in medical debt on consumer credit records. However, the total amount is likely higher.

    Although most medical debt on credit reports are under $500, many people have multiple medical debts, the bureau reported. In addition, medical debt disproportionately impacts Black and Hispanic communities and people with low incomes, veterans and older adults, according to the bureau. This type of reporting may disrupt access to credit, increase a resident's bankruptcy risk, while also creating barriers to housing and health care.

    The proposal comes after a local and state movement to reduce financial barriers and deterrents to care as medical costs increase.

    Late in May, Gov. Ned Lamont signed legislation that prohibits health care providers and hospitals in the state from reporting medical debt to credit rating agencies. The law also cancels out medical debt that is reported to credit rating agencies, starting on July 1.

    "When medical debt is included in a person's credit report, creditors are making decisions based on a person's medical history that is not necessarily representative of their financial responsibility and household finances," Lamont said in a statement. "By prohibiting medical debt from being reported to creditors, we are protecting patients who may have otherwise been apprehensive about seeking essential medical care."

    CHA was one of the many consumer advocacy groups who submitted testimony in favor of the bill. Kidwell said it was logical to support the bill because many Connecticut hospitals were already refusing to report medical debt to credit agencies.

    Even before Lamont's law, Kidwell said many Connecticut hospitals were individually choosing not to report medical debt to credit companies knowing the residual impact.

    "Hospitals and health systems in the state have some of the most expansive financial assistance policies and really work hard to make sure that perceived inability to pay is not a barrier to accessing care," he said. "We apply those policies very aggressively to make sure that people do feel comfortable that they'll be able to afford their care."

    In general, Kidwell said there are many factors driving high cost of medical care, including inflation, health care worker shortages and increasing energy costs. The impact of high cost is felt across every level of care, from prescriptions at the pharmacy to a hospital visit. He said there's also been a trend among insurance companies to offer high deductibles and ask the consumer to pay more for care.

    At the same time, Kidwell said Connecticut hospitals have struggled financially in the last several years. He said CHA is working with hospitals to find ways to decrease costs in a mindful way without affecting quality of care. He said CHA is experimenting with a new initiative to provide hospital care at home as a way to reduce cost.

    In 2003, Congress restricted lenders from using medical information, including information about debts, according to CFPB. However, a special regulatory exception created a loophole that allowed creditors to use medical debts in credit decisions.

    After a 2022 CFPB report found that medical bills made up $88 billion in reported debts on credit reports, three nationwide credit reporting agencies announced they would take action to take many of the bills off reports. These efforts reduced the number of Americans with medical debt on credit reports from 46 million to 15 million.

    If finalized, the proposed rule would eliminate the special medical debt exception from 2003 and establish guardrails for credit reporting companies. It'd also ban lenders from taking medical devices as collateral for a loan and from repossessing them if people are unable to pay.

    Kidwell said the proposed federal rule wouldn't have much practical impact on Connecticut since the state already made similar changes earlier this year. However, he hopes the new proposal brings more awareness to an issue that Connecticut hospitals have been working to address.

    "We absolutely do not want people to think 'I'm not going to seek care because I could face a negative financial consequence or I could not afford it,'" Kidwell said. "The more we can think of these things as interconnected, a system approach, the better off we certainly will be in really supporting the health and wellbeing of our communities. I think hospitals across the state are very invested in making sure that our communities are strong."

    As part of the new proposal, Harris also called for states and local governments to step up their efforts to decrease or erase medical debt by continuing to leverage federal funds, expanding access to charity care and regulating debt collectors.

    About $7 million in American Rescue Plan funds are already in use in the country to eliminate medical debt for 3 million residents by 2026, according to the White House press release.

    Much of the debt elimination efforts have focused on individual cities and municipalities rather than a whole state. Connecticut was one of the first states to announce a systemic, statewide approach to eliminate medical debt back in 2021.

    Although the initiative is slow going, the state will spend $6.5 million ARPA funds to cancel about $650 million in medical debt held by residents. In total, the governor's office expects about 250,000 residents to have their debt wiped away.

    "It's the right thing to do, it takes that dark cloud (away)," Lamont previously said. "Imagine getting that letter saying you're now debt-free."

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