U.S. Rep. Mary Jo Kilroy submits the Medical Debt Relief Act of 2009 to wipe paid and settled debt incurred through health care from credit records
WASHINGTON—Over 28 million Americans were harassed by debt collectors in 2007 because of health care bills, but a new piece of legislation from U.S. Rep. Mary Jo Kilroy would end the practice of using that debt even after it is settled to affect consumers’ credit scores. The Medical Debt Relief Act of 2009 would prohibit medical debt paid off or settled as a criteria for credit bureau’s to determine approvals for mortgage rates and other consumer purchases.
Many of these debts arise from disputes with health insurance companies. The health insurance industry sends out debt for collection for as little as $1 dollar that can costs consumers thousands of dollars when buying a home or a car.
“Debt from medical expenses isn’t like buying a big screen television on a credit card, but it is being treated in exactly that way by the credit bureaus even when it is paid off. People shouldn’t have their credit worthiness suffer because they got sick or injured,” Kilroy said. “Health insurance reform is essential to achieving a stable health care system that gives Americans peace of mind and it is also vitally important that we deal with medical debt that is hurting consumers and our economy. It is outrageous that bills for as little as a one dollar dispute with insurance companies are driving up the mortgages of my constituents.”
Medical debt affects roughly 72 million Americans each year and according to a Commonwealth Fund study 28 percent of Americans pay that debt over time. Though some of those Americans that incur medical debt large and small find a way to pay off the debt or settle, the adverse effects on their credit score remain. Kilroy’s bill would prohibit paid or settled medical debt from affecting credit scores and force credit bureaus remove the debt within 30 days.
While health care costs have increases, so have medical debt. In fact, 60 percent of those with medical bills and debts were insured at the time they assumed the debt. This debt has presented challenges to those consumers trying to buy a home. According to mortgage originators and services, even one negative medical collection mark on a credit score can drop a consumer from Tier 1 to Tier 2 of the credit rating system. This could cost the consumers thousands of dollars in percentage points and closing premiums.
The Medical Debt Relief Act of 2009 is co-sponsored by chairman of the House of Representatives Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit Rep. Luis Gutierrez, House Democratic Leadership Deputy Whip Rep. Jan Schakowsky, Rep. Tom Perriello and Rep. Walter Minnick, Rep. Joe Baca, Rep. Jackie Speier, Rep. Maurice Hinchey, Rep. Keith Ellison, Rep. Gwen Moore, Rep. Marcia Fudge and Rep. Marcy Kaptur .
Medical Debt Relief Act – FAQ
What is the problem?
Medical debt collections that has been completely paid off or settled can still significantly damage a consumer’s credit score for years. As a result, consumers can be denied credit or pay higher interest rates when buying a home or obtaining a credit card.
Why is medical different from other type of debt?
Medical debt is unique. Americans don’t choose when accidents happen or when illness strikes. Medical debt collection issues affect both insured and uninsured.
Furthermore, according to credit evaluators, medical debt collections are more likely to be in dispute, inconsistently reported, and of questionable value in predicting future payment performance because it is atypical and non-predictive.
How big is the problem?
According to The Commonwealth Fund, medical bill problems or accrued medical debt affects roughly 72 million working-age adults in American. For 2007, 28 million working-age American adults were contacted by a collection agency for unpaid medical bills.
What does the Consumer Medical Debt Relief Act do?
The “Medical Debt Relief Act of 2009” would amend the Fair Credit Reporting Act to prohibit consumer credit agencies from using paid off or settled medical debt collection in assessing a consumers credit worth.
The creditor or credit rating agency would have thirty (30) days from the date the medical debt collection is paid off or settled to expunge the collection from the consumer’s record.
