Millions of Americans now face a devastating one-two punch on health care
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Millions of low-income Americans already face the prospect of losing their health insurance, and now they're looking at another worry: lower credit scores.
Why it matters: Poor credit scores not only make it harder to borrow money, but also to accomplish such basic things as land a job or rent an apartment.
How it works: The Trump administration last week got a federal court to toss a Biden-era rule that would have removed medical debt from people's credit reports.
- At the same time, cuts to Medicaid and the Affordable Care Act in the "big, beautiful bill" will likely mean people pay more for health care.
The big picture: That means a single medical setback — hospitalization, broken bone, or worse — could crater people's credit scores, if it leads to unpaid bills that wind up in collection.
- "You really are double hammering households," says Michael Calhoun, president of the Center for Responsible Lending, a consumer advocacy group.
- Meanwhile, other debts are also about to show up on credit reports, including delinquent student loans, after a years-long pause, and buy-now, pay-later purchases. And cuts to food stamps, or SNAP, present an additional strain.
Follow the money: Some argue that it's a win for consumers who pay their bills on time to have more information on their credit reports.
- But the more data the credit agencies have about people, the more potential there is that consumers get hurt by negative information, says Chi Chi Wu, a staff attorney at the National Consumer Law Center, which was on the losing side of the medical debt ruling.
- "It's not just you can't get a credit card, but you can't get a roof over your head."
The intrigue: Because of the complexities of the U.S. health care system, it might not even be an unpaid bill that snares your credit score.
- Consumers routinely complained to the Consumer Financial Protection Bureau about medical debt errors on their credit reports, says Julie Margetta Morgan, a former associate director at the agency.
- Either the insurer should have paid; or the consumer already had, but it still appeared. Sometimes, debt would show up that was a mystery, says Morgan, now president of The Century Foundation, a progressive think tank.
- These issues can take a while to resolve, and that debt is like a "ticking time bomb," she says. "If you don't get it resolved, it will be reflected on your credit report." The CFPB's research also found that medical debt is not predictive of someone's likelihood to pay other bills.
Reality check: There are reasons that the debt bomb may not fully explode here. After the CFPB drew attention to the issue, nine states banned medical debt from appearing on credit scores, including New York, Colorado and Minnesota.
- And the big credit-reporting firms stopped including medical debt under $500 on credit scores. Since then, the share of Americans with debt in collections has fallen.
- The firms do not plan on rolling back that change, according to a statement from Dan Smith, CEO of the Consumer Data Industry Association (CDIA), a trade group that challenged the medical debt ruling.
What to watch: Medicaid cuts may not materialize. On Tuesday, Sen. Josh Hawley moved to reverse some.
- The NCLC hasn't yet said if it would appeal the medical debt ruling; though its odds of success are small.
The other side: "Information about unpaid medical debts is an important element in assessing a consumer's ability to pay," the CDIA said in its statement.
The bottom line: Your credit score is supposed to reflect your strength as a borrower — it's also a snapshot of policy decisions made way above your head.
