The American healthcare and credit reporting systems work in tandem to "coerce and extort patients into paying medical bills they may not even owe," a new report from the U.S. Consumer Financial Protection Bureau (CFPB) finds.
“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. He blamed the "complicated and burdensome nature of the medical billing system" for contributing to the problem.
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.
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 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.
Half of all bankruptcies
None of this is new or surprising. Sen. Elizabeth Warren (D-MA) was still a Harvard law professor when she compiled research that found half of all U.S. bankruptcies in 2001 occurred in the aftermath of a serious medical problem.
The study became a political football and was heavily criticized by conservatives, leading Warren and her colleagues to conduct a follow-up study in 2007. It found that:
- 62.1% of bankruptcies had a medical cause;
- Most debtors were middle class and well-educated;
- Three quarters had insurance; and
- The share of bankruptcies attributed to medical bills increased 50% from 2001 to 2007.
The CFPB's 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.
What happens next?
The CFPB said it "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.
- 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.
- 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.
Read the CFPB’s full report, Medical Debt Burden in the United States.
Consumers having an issue resolving a medical debt or facing a problem with other consumer financial products or services can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).