New York joins Colorado in banning medical debt from consumer credit scores

New York has become the second US state to protect its residents’ credit ratings from being tarnished by unpaid medical bills.

New York Governor Kathy Hochul signed a bill excludes credit reporting agencies such as Equifax, Experian and TransUnion from including medical debt on consumer credit reports. Colorado also excludes medical debt from credit scores, except in certain circumstances.

“I am signing a bill that prohibits hospitals, health care providers and ambulances from reporting medical debt to your credit bureaus,” Hochul, a Democrat, said at the law signing ceremony in New York City. “People can focus on getting healthier and not focus on whether or not someone is going to catch you and catch you and make you spiral even more, so that’s what we’re talking about.”

Bad credit making it more difficult to secure a loan, buy a house or car or get approved for a credit card. People with low credit scores also typically pay more for home or auto insurance.

“Many New Yorkers are drowning in medical debt that can be difficult to pay off, especially for those who may be struggling with a serious health challenge,” Chuck Bell, director of advocacy for Consumer Reports, said in an email praising the bill . “This new law will ensure that New Yorkers will not see their credit destroyed by medical bills that blow their budgets.”

On Your Side: Medical Debt and Your Credit Report


National crisis

Nearly 25% of Americans say they have overdue medical or dental bills they can’t afford, according to a investigation by KFF Health News with NPR.

“Medical debt is forcing millions of Americans to cut back on food and other essentials, drain retirement savings and make other difficult sacrifices,” KFF said in its analysis.

While medical debt affects even high-income earners as well as the uninsured, it disproportionately impacts communities of color and lower-income people, according to the KFF-NPR study. Nationally, 28% of blacks and 22% of Hispanic Americans have medical debt, compared to 17% of whites, US Census Bureau data shows.

“Medical debt is such a vicious cycle. It really hits low-income people, but it forces them to stay low-income because they can never get out of it,” Hochul said.

A medical debt relief charity


Hochul’s actions come amid efforts by the Biden administration to address the issue. In September, officials said they planned to develop federal rules by 2024 that, if enacted, would block credit reporting agencys from drawing on medical debt.

Instead of federal protections, lawmakers in at least a dozen states have introduced legislation aim to limit the financial damage caused by medical debt. Some of these bills would prevent medical debt from ruining credit scores and create emergency assistance programs, while other proposals would protect personal assets from the collection of unpaid health bills.

The credit reporting industry is also taking action as the issue receives increasing scrutiny from lawmakers. Equifax, Experian and TransUnion agreed last year get most medical debts off credit reports. This year, companies have stopped including medical debt of less than $500.

A blow to healthcare providers?

While consumer advocates say more needs to be done, critics assertion that removing minor medical bills from a person’s credit report makes it harder for health care providers to collect.

“Historically, the risk that an unpaid medical bill under $500 could be reported on a consumer’s credit report has given the patient incentive to pay the bill,” a California physician argued in a class-action lawsuit he submitted in August against the three credit bureaus.

“Medical providers now have a more expensive path to collect on unpaid medical bills, if they can collect at all,” the complaint added.

Some Republican lawmakers fear New York’s new legislation could also have unintended consequences.

Republican Assemblyman Josh Jensen, who voted against the bill, said that while there is a need to ensure people are not financially haunted by emergency medical debt, the legislation is too broad and should not apply to non-acute care.

“There is a concern that people may incur an amount of debt with no intention of paying it back, rather than the intended rationale of the legislation to ensure that people who need the critical care can get it without worrying say that the debt will follow them forever.” he said.

New York’s law takes effect immediately. “No one should ever have to make a terrible choice between their physical health and their financial health,” Hochul said.

—With reporting from the Associated Press.

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