In a blog post published last week, the CFPB looked at the connection between eligibility for financial assistance under policies mandated by the Affordable Care Act (ACA) and medical collections. The ACA requires nonprofit hospitals to establish financial assistance policies for consumers who are unable to pay for their medical expenses.
The key findings discussed in the blog are:
- Nonprofit hospitals are prohibited by the ACA from reporting medical debts as collections to credit reporting companies, or from selling the debt to another party, without first trying to determine whether the patient would be eligible for their financial assistance policies. Nevertheless, a large percentage of low-income consumers in 2018 had at least one medical collection on their credit reports.
- Some state laws have established eligibility thresholds as a percentage of federal poverty levels, which are based on both income and household size. Among people in households with children and with incomes under $40,000, 38.1 percent had at least one medical collection on their credit report in December 2018, a rate that is nearly three times the rate for people without children earning the same amount.
- The Northeast has the fewest medical collections per person and the lowest average collection balances among those with one collection or more. The South has the highest percentage of individuals with a medical collection, while the number of collections and total amount owed are highest in the Midwest. Differences in the adoption of Medicaid expansion, differences in income levels, or differences in the rates of medical insurance coverage may explain some of the regional differences. State laws and programs related to the provision of financial assistance also appear to differ significantly across the country. Further research is needed to determine the extent to which the regional differences are also the result of differences in state financial assistance policies.
- In July 2022, Experian, Equifax, and TransUnion began removing paid medical collections from credit reports, and starting in 2023 they will no longer report medical collections below $500. The companies have also increased the amount of time after which a medical bill can appear on a credit report from six months to one year. While these changes have the potential to improve the credit of low-income individuals who, despite possible eligibility for financial assistance, have medical collections on their credit reports, many low-income consumers are still unlikely to benefit because their existing medical bills exceed the $500 threshold. Among consumers with medical collections on their credit reports, 48 percent of those making less than $40,000 per year in 2018 had at least one collection item for over $500 at the time.
The CFPB concludes the report by suggesting that nonprofit hospitals may not be providing low income consumers with the financial assistance for which they are eligible. While acknowledging that it lacks the data to identify debts incurred from nonprofit hospitals and many medical debts may come from for-profit and other providers, the CFPB observes that nonprofit hospitals make up approximately 49 percent of all hospitals. The CFPB states that “[t]hese hospitals must provide financial assistance and other community benefits in exchange for the significant tax benefits they receive, yet our results suggest that many consumers do not receive the financial assistance they need.” It also observes that “[d]ifferent regions of the country also experience very different outcomes with medical collections, some of which may be attributed to differences in state laws and other programs regarding financial assistance.”
The CFPB has already issued three reports this year on medical debt, with its most recent report issued last month. In the most recent report, the CFPB analyzed how the changes announced by Equifax, Experian, and TransUnion will affect people who have allegedly unpaid medical debt on their credit reports. The CFPB concluded that report with the statement that it “shows that a substantial share of medical collections currently reported on consumer credit reports likely qualify to be removed” under the change announced by the national credit reporting companies. We observed that while the CFPB’s previous comments had strongly suggested that the agency was headed in the direction of taking steps to block or limit the reporting of medical debt, the findings in the latest report might cause the CFPB to question whether such action is needed. Regardless of what position the CFPB ultimately takes on the reporting of medical debt, it is clear that medical debt will continue to be a CFPB focus under Director Chopra.