Medical debt has often been a significant financial burden for many of us. Medical debt can lead to damaged credit scores and reduced access to credit. Recently, the current administration in Washington introduced new legislation that could alleviate the impact of medical debt on credit scores and reports. 

Medical Debt, and the wicked-high medical costs is something that I feel really strongly about. Enough, in fact that I started a non-profit effort to help those impacted and is experiencing hardship when having premature babies or complications during pregnancy.

I recently found out about this new legislation. I wanted to share some of what I learned, how it affects us, and what steps we can take to benefit from these changes. Let’s dive into some of the details to understand how this legislation can help you manage your finances better.

The Burden of Medical Debt

Medical debt arises from unexpected, and often inflated, healthcare expenses. These expenses can be overwhelming for many individuals and families. According to some recent studies, approximately one in twelve U.S. adults have unpaid medical bills of at least $250. This debt can quickly accumulate to thousands of dollars, especially in cases of a serious illness, an injury, or an emergency medical procedure. Unfortunately, when medical bills go unpaid, they can be sent to collections, which can significantly impacting credit scores and appearing on credit reports for years!

New Legislation on Medical Debt

The current administration has taken a significant move forward to prevent medical debts from affecting people’s credit scores. This could potentially lead to approximately $49 billion in medical debt being wiped from around 15 million Americans’ credit reports. Talk about a Win! Here are some key components of the new legislation:

Removal of Medical Debt from Credit Reports

The proposed rule from the Consumer Financial Protection Bureau (CFPB) would stop reporting companies from determining creditworthiness based on medical debts as well as sharing this information with lenders. By doing so, it aims to ensure that lending decisions are not based on a person’s medical circumstances. A person’s medical situation often has little to no predictive value regarding the repayment of other loans.

Boost in Credit Scores

Banning medical debt from credit reports is expected to boost credit scores by as much as 20 points, and sometime even more! This increase in credit scores could result in roughly an additional 22,000 more mortgages being approved each year! This can increase access to home ownership for many Americans.

Extended Grace Period for Unpaid Medical Debt

This legislation builds on a previous 2022 effort by the major credit bureaus—TransUnion, Equifax, and Experian—to keep medical debt off consumers’ reports until it is at least a year old. This extended grace period gives individuals more time to negotiate with healthcare providers, insurance companies, or find other means to settle their debt without it impacting their credit scores.

Improved Transparency and Dispute Resolution

The new rule requires healthcare providers as well as debt collectors to provide clearer information regarding medical bills and debt. Medical billing can be so confusing and convoluted. This is desperately needed. It also strengthens dispute resolution processes by allowing individuals to challenge incorrect or inaccurate medical debt entries on their credit reports more effectively.

I’d encourage whenever you or your family receives medical care to ask for an itemized, or what is sometimes called a “super bill” for the services received. Believe it or not, up to 80% of medical bills has some sort of error in them! Ummm What?! Review these bills, to see if you aren’t being charged for things you didn’t receive, such as a test you didn’t get or didn’t agree to. Medical coding can be super complicated. If you don’t know, please ask. Call the clinic, doctor, or hospital and confirm what is listed your bill if it isn’t clear.

How This Legislation Affects You

The new legislation provides several benefits that can significantly impact your financial health:

Improved Credit Scores

One of the most relevant and immediate benefits of the new legislation is the potential improvement in credit scores. By removing medical debt from credit reports, individuals who have unpaid or settled their medical bills will see their credit scores improve. This improvement can lead to better access to credit, lower interest rates, and other improved financial opportunities.

Reduced Stress and Anxiety

Medical debt is often a major source of stress and anxiety for many people. The extended grace period and removal of medical debt from credit reports mean fewer people will see their credit affected by medical debt. I think the potential reduction in financial stress could improve overall well-being and financial stability.

Greater Financial Flexibility

With better credit scores and less medical debt appearing on credit reports, individuals will have greater financial flexibility. This flexibility can make it easier to secure loans, credit cards, or access to mortgages, and at more favorable terms.

Practical Steps to Take Advantage of the New Legislation

To benefit from the new legislation on medical debt, consider taking the following steps:

Review Your Credit Report

It can be a good idea to regularly review your credit report to ensure that any medical debts have been appropriately addressed. You can obtain a free credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—once a year at AnnualCreditReport.com.

Dispute Inaccuracies

If you do find any incorrect, inaccurate or unpaid medical debts that should NOT be reported due to the new legislation, I’d suggest to dispute them with the credit bureaus. You’d need to provide any necessary documentation to support your dispute. Keep good records, and provide the data when filing a dispute. It’ll be worth it!

Communicate with Healthcare Providers

If you do have outstanding medical debt, please communicate with your healthcare providers to negotiate payment plans or settlements. Often you can work with clinics, hospitals, and providers to setting debt. This can be done with either a lower lump sum or a zero-interest payment plan. Be proactive in managing your medical bills to prevent them from being sent to collections.

Utilize Financial Assistance Programs

Many hospitals and healthcare providers also offer financial assistance programs for individuals and families struggling with medical bills. Explore some of these options to reduce your debt burden. If you are experiencing financial hardship, and, this is due to premature birth such as a NICU stay or complications during pregnancy please reach out to The Luger Foundation. There may be help for you!

Stay Informed

Try and keep yourself updated on any further changes or updates to the legislation. I now it can be hard, but understanding your rights and the latest regulations can help you better manage your medical debt and credit.

A Step Towards Financial Relief

The new legislation on medical debt is a significant step towards providing some financial relief for millions of Americans. By removing medical debt from credit reports, extending the grace period for unpaid debts, and improving transparency, this legislation can help improve credit scores as well as reduce the stress associated with medical bills.

By taking proactive steps to review your credit report, dispute inaccuracies, and communicate with healthcare providers, we can help take full advantage of these new rules. With these changes, managing your finances and maintaining a healthy credit score becomes more attainable, paving the way for a more secure financial future.

Stay informed, be proactive, Keep those horns up, and leverage the benefits of this legislation to improve your financial health and well-being.