Medical Debt & Credit Impairment — Fear Tactics Taking a Hit

In case you missed it, the Biden administration recently announced that the Consumer Financial Protection Bureau would work toward removing medical debt from credit reports of more than 15 million Americans and, ostensibly, ban medical debt from credit reports period. Back in 2023, the top three credit bureaus — Experian, TransUnion and Equifax — moved to remove all unpaid medical debt that had an initial balance below $500. Not surprisingly, medical debt relief has proven to be popular with most people. 

Notice I said most people. One person is not too keen on the idea. Ge Bai, a professor of accounting and health policy at Johns Hopkins penned an article for Forbes stating that the proposed CFPB rule would “harm the very Americans it intends to protect.” This isn’t the first time that Bai has raised red flags regarding medical debt relief. Back in April, she discussed the results of a study put together by economists from Harvard, Stanford, the University of Munich and UCLA to study the effects of medical debt relief involving 83,401 individuals. The study found “no improvements in financial well-being or mental health from medical debt relief, reduced repayment of medical bills and, if anything, a perverse worsening of mental health.”  

While it would be fun to go through each point in that study and illuminate some of the nuances that may be presenting more as noise than as gospel, that’s not the point of this article. Instead, I want to touch on some of Bai’s proposals in place of changes to how we view and handle medical debt. 

First, Bai stated that a bigger push needs to be made to inform low-income patients about hospital charity care while insured patients with higher income enrolled in high-deductible plans should lean toward cash prices rather than insurance negotiated prices. 

Second, the high cost of healthcare is mentioned. Bai stated that “competition is the only approach capable of lowering prices, stimulating innovation, improving quality and expanding access. Therefore, public policies that level the playing field, remove anticompetitive roadblocks and reduce compliance burden for providers would put downward pressure on prices.” 

Finally, Bai discussed the need for the American worker to, frankly, get paid more. “Therefore, pro-growth and pro-job policies that allow able-bodied adults to earn more income through their efforts would mitigate medical debt in a sustainable manner,” she noted. 

Hard to argue with the points she made. However, what Bai or really anyone else discussing the issue of medical debt haven’t touched on is this. While we can all acknowledge the root cause of problem in healthcare is the ridiculous prices charged by hospitals, for some reason, we can’t bring ourselves to discuss the obvious cure — pay less for healthcare. 

Why do we force low-income patients to jump through hoops to get care? Because we pay too much for healthcare. 

Why do people with insurance have to skirt the very thing they pay premiums to use when they can get a better cash deal? Because we pay too much for healthcare. 

Why aren’t American workers making more money? Because we pay too much for healthcare. 

Do you know how you stop paying too much for healthcare? You do that by NOT paying too much for healthcare. Thank God the lawyer is here to state the obvious. Reference-based pricing is part of the solution to pay a fair price for medical care that doesn’t bankrupt businesses and forces employees into the circus of how to finance basic healthcare costs. RBP is part of the solution to pump competition back into the market and lower healthcare costs among providers who should be working to get your business rather than you working to stay alive and get theirs. RBP is part of the solution to put more money back into the pockets of the American worker. (Ask our own Michelle Henaman about a municipal city client of ours that was able to cut copays for its employees using RBP). 

Providers are more than happy to use debt collection as a pressure point against RBP to influence employers back into traditional networks. Traditional networks that provide certain comforts to members, along with bad contracts that contribute greatly to overspending for healthcare.  

Let’s be clear not to confuse debt forgiveness with changes to how medical debt is reported. Just because medical debt won’t be reported on your credit doesn’t mean the debt suddenly vanishes. However, with ClaimDOC’s DirectAccess+,™ a member is never responsible for more than their patient responsibility. But the toothless collection efforts on anything above that number leveraged the members’ fear of credit impairment to get dollars collected. That going away is perfect for a program like ours. 

Dampening the noise that debt collection causes will allow employers the grace period to try new ways of tackling healthcare spend. Allowed to work, DirectAccess+ puts money back into the pockets of businesses and their employees, which in turn, allows people to pay their bills and have a bit of breathing room at the end of the month.  

When I hear that medical debt relief in any form will just make things worse, I think of a quote from a gentleman who knows firsthand what it’s like to face collections following medical treatment. In speaking with PBS about his experiences with debt stemming from medical care, Janille Williams had this to say: “They don’t give you a choice in the hospital. ‘If you leave, you’ll die,’ they told me. I didn’t feel like dying. … I don’t think anyone should have to go into financial ruin to live.” Medical debt relief won’t make things worse — things are already worse in healthcare. 

It’s time to address not only the root of the problem but the cure — pay less for healthcare.