New Federal Rule Will Erase All Americans’ Medical Debt From Credit Reports

Medical debt will be removed from consumer credit reports for all Americans under a final rule announced Tuesday by Vice President Kamala Harris.

The rule will affect more than 15 million Americans, raising their credit scores by an estimated average of 20 points. No Americans will have medical debt listed on their credit report — down from approximately 46 million Americans who had this kind of debt on their credit report in 2020.

The vice president also announced that states and localities have already utilized American Rescue Plan (ARP) funds to support the elimination of over $1 billion in medical debt for more than 700,000 Americans and that jurisdictions are on track to eliminate approximately $15 billion in medical debt for up to almost 6 million Americans.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Harris said in a statement Tuesday. “This will be lifechanging for millions of families, making it easier for them to be approved for a car loan, a home loan, or a small-business loan. As someone who has spent my entire career fighting to protect consumers and lower medical bills, I know that our historic rule will help more Americans save money, build wealth, and thrive.”

Harris had previously announced the effort to remove medical debt from credit reports last summer. It may still face legal and political challenges, from credit reporting agencies and debt collectors, as well as from President-elect Donald Trump.

Medical debt is the largest source of debt in collection in the United States, and it’s more likely to be held by women, people with disabilities and Black Americans.

The nationwide credit reporting agencies, which are Equifax, Experian and TransUnion, removed medical debt under $500 from consumer credit reports as of April 2023. However, in April, the Consumer Financial Protection Bureau (CFPB) released research that found 15 million Americans — particularly those in the American South and low-income communities — still have medical debt on their credit reports.

While medical debt estimates vary, a KFF Health Policy Research analysis last year found that 20 million people owed a collective $220 billion in medical debt. The analysis found that 13 percent of people with disabilities reported having medical debt, compared with 6 percent of those without a disability. It also found that non-Hispanic Black people carry more medical debt than other racial and ethnic groups, and women carry more than men. A separate analysis found that 14 percent of people who gave birth within the last year and a half reported having medical debt, compared with 7 percent of those who did not.

“Since we know that Black adults and women are more at risk of having medical debt, then I would expect this policy would benefit those groups,” said Cynthia Cox, KFF vice president and director of the foundation’s Program on the Affordable Care Act, which examines health care coverage costs, affordability and accessibility.

Undue Medical Debt, the nonprofit formerly known as RIP Medical Debt that contacts hospitals and health care systems requesting that they sell or donate portions of patients’ debt, and Perry Undem, a nonpartisan public opinion research firm, surveyed over 2,600 adults in August 2023, 229 of whom were Black women. Among Black women, 27 percent said they have delayed or said no to health services out of concerns over acquiring medical debt. A study from the American Cancer Society published in March suggested that “medical debt is associated with worse health status, more premature deaths, and higher mortality rates at the county level in the US.”

Federal efforts to remove medical debt from credit reports began in 2023 after Harris announced that the CFPB would take the first steps to create rules that would take medical bills off credit reports, prohibit creditors from using medical bills to make underwriting decisions and ban collectors from using medical debt to pressure consumers to make payments. These proposals would narrow the 2005 exemption in the Fair Credit Reporting Act, which allowed creditors to use medical debts in underwriting credit decisions. Creditors would still have the ability to access medical debts and bill information in certain instances, such as to evaluate loan applications for medical services.

Other federal efforts to curb medical debt include the No Surprises Act, which took effect in July 2022 and prohibits surprise billing for most emergency services and non-emergency services done out-of-network.

In 2022, YouGov, a research data and analytics technology group, reported that 66 percent of Americans supported government relief for medical debt. Eva Stahl, the vice president of public policy and program management at Undue Medical Debt, attributes this support to the fact that it can impact anyone.

“It’s not a debt of choice, it’s a debt of necessity. Because there’s a general consensus about that, it’s not really a partisan issue,” she said.

Stahl said they have gotten interest from legislators across the nation, even in the South, with some jurisdictions in Texas and Kentucky showing interest in erasing residents’ medical debt. Some state-level efforts to erase medical debt for state residents have either passed or been proposed — some in partnership with Undue Medical Burden.

In June 2023, Colorado became the first state to prohibit medical debt from being included on residents’ credit reports. Similar legislation was passed last year in Connecticut and proposed in New Jersey.

In 2023, Connecticut’s state legislature approved a budget that would allocate $6.5 million in American Rescue Plan (ARP) funding toward erasing medical debt for residents whose medical debt is 5 percent of their income or whose household income is up to 400 percent of the federal poverty line. Last year, Arizona Gov. Katie Hobbs, a Democrat, announced efforts to use $30 million of ARP funding to cancel medical debt for up to 1 million Arizonans, using similar criteria as Connecticut. Both states partnered with Undue Medical Debt.

To Stahl, removing medical debt from credit reports has limitations.

“Patients will still feel the stress of having debt collectors call them several times a day, asking them when they’re going to pay their medical bills, or they may get into payment plans that they can’t really afford,” she said.