Study: Consumers unfairly penalized by medical debt

Consumers paying off medical debt could be better off if credit bureaus treated it differently than the other bills they service, the Washington Post reported.

Those with medical debt who had lower credit scores paid it off at generally the same rate as those with higher scores, according to a survey of credit histories and scores of 5 million anonymous Americans by the Consumer Financial Protection Bureau (CFPB). And even if that debt was placed in collections--which damages credit scores-- the consumers were likely to pay off all debt anyway.

"This tells us that having a medical debt in collections is less relevant to a consumer's creditworthiness than having an unpaid cellphone bill or overdue rent," CFPB Director Richard Cordray said during a press conference to discuss the study, according to the Post.

Consumers are often the victim of adverse--and undisclosed--reports to their credit scores if their insurer and provider dispute whether to cover and pay for a portion of their care, the study noted.

Consumers with medical debt could improve their credit scores by as much as 22 points if the major credit bureaus treated that debt differently, according to the Post.

"These point differences may not matter as much to consumers who have very high credit scores because they may still be able to qualify for loans and the rate they pay may not be affected," Cordray said. "But for consumers with lower scores, these differences can be more significant. They may cause consumers to be denied a loan altogether or they could cost tens of thousands of dollars over the life of a home mortgage."

Medical debt and how healthcare organizations collect it has become a growing issue as cost-shifting to patients continues to grow. The Healthcare Financial Management Association earlier this year released guidelines for how to better manage the process, including clearer and more proactive communications with patients and credit bureaus.

Congress is mulling a bill that would quarantine medical debt from consumer scores--a practice that hospitals support--but it has stalled in committee for the past year, the Post reported.

To learn more:
- read the Washington Post article
- here's the study (.pdf)