On Monday, June 11, both U.S. VP Kamala Harris and CFBD Director Rohit Chopra released a statement on plans to remove medical debt from credit reports, a reality that plagues 15 million Americans.
Such a policy move should help this group see credit score boosts on average of 20 points for each individual. For those in the position to have medical debt, that’s a great thing — money is the last thing those battling certain conditions need to worry about.
In addition, Harris also noted the Biden Administration plans to continue to investigate new ways to reduce medical debt burdens across the board. These initiatives will. complement the $7 billion in debt elimination the Biden team expects to see through 2026 via the American Rescue Plan.
Let’s dive into what specially was announced, and what this means for Americans’ credit moving forward.
What is the American Rescue Plan?
The American Rescue Plan is a $1.9 trillion package the government put forward in the pandemic’s wake. This program was aimed at reducing economic hardships for American families, fostering an equitable recovery. To some extent, it certainly achieved its goal.
The rescue plan is famous for providing direct checks to Americans, though some critics of this plan have said it has fueled inflation. Other benefits have ben seen on the unemployment side, child tax credits, and health insurance. Each of which have improved key metrics the Democrats have been looking to move the needle on for some time.
Important, the ARP also allocates funds for both state and local governments to dole out economic assistance.
The Democrats who are supporting the bill passed it as budget reconciliation, but it will need to be approved by the Senate majority. The process also imposes limits on both scope and size of legislation, forcing some trade-offs and key policy exclusions.
On a good note, almost Senate democrats are pushing full support for the bill, showing unity despite narrow majorities. However, eight Senate democrats opposed the $15 minimum wage, and Sen. Joe Manchin demanded cuts to unemployment benefits, weakening the bill’s impact.
Medical Debt Could Become a Political Topic
The Biden-Harris Administration has worked to reduce medical debt and lower prescription drug and health care costs, while Congressional Republicans have consistently opposed these efforts and sought to repeal the Affordable Care Act.
The Republican Study Committee’s recent budget proposal, supported by all House Republican leaders and most members, aims to cut Medicaid, Medicare, and the ACA, preventing Medicare from negotiating lower drug prices.
Additionally, Republicans propose defunding the CFPB, which seeks to remove medical debt from credit reports.
Vice President Harris urges states, local governments, and health care providers to adopt measures to alleviate medical debt burdens, such as using public funds to erase debts, expanding charity care access to prevent debt accumulation, and imposing limits on aggressive debt collection practices.
These actions aim to guarantee universal access to health care without individuals resorting to debt for medical services.
The Analysis on Medical Bills on Credit Reports
The Consumer Financial Protection Bureau unveiled research indicating that despite adjustments made by Equifax, Experian, and TransUnion, 15 million Americans still grapple with medical debts on their credit reports.
Concentrated in the South and low-income areas, these individuals collectively owe over $49 billion in medical bills in collections. This marks the CFPB’s second examination of credit reporting company alterations aimed at reducing medical debt entries.
Director Rohit Chopra emphasized the necessity for additional reforms, noting that the removal of many medical bills reflects their limited predictive value.
In March 2022, a CFPB study revealed $88 billion in medical debts on Americans’ credit reports.
Following this, Equifax, Experian, and TransUnion adjusted their policies, delaying the reporting of medical bills in collections, omitting resolved bills, and excluding bills under $500. By June 2023, only 5% of Americans retained unpaid medical debts on their credit records, a significant decrease from the previous 14%.
Today’s research indicates that approximately 15 million Americans have medical bills on their credit reports, with a significant portion residing in low-income communities and the southern U.S. While credit reporting changes had a marginally lesser impact on lower-income areas, residents in the South continue to bear the highest burden of medical debt.
Despite the removal of smaller balances, the average remaining medical balance surged from $2,000 to over $3,100.
However, a majority of medical collections balances persist on credit reports despite efforts to alleviate the burden for affected individuals.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
