IN SUMMARY:
About 4 in 10 Californians have medical debt. Lawmakers are pushing a bill that would prevent that debt from affecting credit scores.
Medical debt weighs heavily on the lives of millions of Californians. It can affect your credit score and hurt your chances of getting a rental or mortgage.
Earlier this year, the Biden administration announced a proposal to prevent medical debt from appearing on credit reports. That Proposed rule is under consideration and its implementation period is uncertain.
California lawmakers are moving faster with a similar measure that would take effect in January if it becomes law.
Sen. Monique Limón, D-Santa Barbara, is pushing Senate Bill 1061, which would remove medical debt from credit reports and prohibit debt collectors from reporting patients’ medical debts to credit agencies. It would specifically target debts owed to a medical provider, such as a hospital or doctor’s office.
The bill passed the Assembly on Monday and heads to the Senate for a final vote. Until recently, the bill would have also included debt incurred on medical credit cards and specialty loans, but changes in the Assembly Appropriations Committee redefined “medical debt” to exclude them.
Limón was surprised by the changes. The amendments were a victory for a coalition of bankers and lenders which had been calling for such a change for months. Following the amendments, the coalition withdrew its opposition to the proposal.
“This legislation passed through three Assembly policy committees without the most recent Assembly Appropriations amendments, which substantially weakens the bill,” Limon told CalMatters in an emailed statement. “It is clear that… influential entities opposed to the measure prevailed.
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“Despite this disappointing setback, I plan to continue pushing for passage of SB 1061 in the hopes that we can provide partial relief to consumers.”
Representatives for Assembly Speaker Robert Rivas had no comment on the bill, and Assembly Appropriations Committee Chairwoman Buffy Wicks did not respond to messages and emails asking why the changes were made. Those lawmakers can change the bills in the Appropriations Committee.
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Supporters of the Lemon bill say that even though the feds are moving in a similar direction, the California bill still has merit.
“Right now, the (federal) rulemaking is just a proposal. It could be watered down, it would take a long time. And then, of course, depending on what happens with the election, there’s a big question mark about what will happen with any of our federal rules,” said Jenn Engstrom, state director of the California Interest Research Group, one of the bill’s sponsors. “So rather than leaving it up to the uncertainty of the federal government, we think it’s really important for California to have a strong role here.”
The bill is supported by the fiscal general Rob Bonta and the California Nurses Association, among other health advocates. Advocates argue that people take on medical debt through no fault of their own. After all, going into debt because you need surgery isn’t the same as going into debt for a luxury vacation. Experts and advocates say medical debt is also more prone to inaccuracies because of billing errors or disputes with insurers.
The bill “doesn’t forgive the debt, but it does ensure that when it’s not reported we don’t negatively impact people’s lifetime credit scores,” Limon said.
If the bill reaches the governor’s desk and he signs it, California would join states like Colorado and New York in prohibiting medical debt from damaging credit scores.
The burden of medical debt
According to the California Health Care Foundation, approximately 4 out of 10 Californians report that they have some type of medical debt. Nationally, the average medical balance on credit reports is around $3,100.
“The impact of this debt is so well-known that many people factor it into their decision to seek care when they need it, and many choose not to, deciding to avoid the (medical) bill that puts their health at risk,” said Katie Van Deynze, a policy and legislative advocate for the consumer advocacy group Health Access California.
In June, The Biden administration announced a proposal that would ban medical debt from appearing on credit reports. It is expected to help boost the credit scores of about 15 million Americans by an average of 20 points, according to the administration’s announcement. The administration estimates that would translate into the approval of about 22,000 additional mortgages each year.
The federal proposal also leaves out medical credit cards, a loophole Limón hoped to close.
Medical providers can offer medical credit cards as an option to cover the cost of a procedure. They can be tempting, as they offer people the option of making no upfront payment and a promotional period of deferred interest. However, if interest is applied, it may be higher than that of a regular credit card.
Groups like the California Bankers Association argued that the definition of “medical debt” in the Limón bill was too broad. The only debt that should be included in this legislation, they said, is that which is owed directly to a medical facility or provider. In hearings and letters to the legislaturelobbyists for these groups argued that medical credit cards could also be used for elective procedures, fitness programs and veterinary services, among other expenses. That type of debt, they argued, should not be hidden from creditors.
Medical Debt Forgiveness
The issue of medical debt resonates so much with the public that some local governments and states are going a step further and pushing to implement debt relief programs.
This summer, the Los Angeles County Board of Supervisors announced a pilot program to purchase millions of its residents’ medical debts through a partnership with the national nonprofit Undue Medical Debt. Hospitals and other providers can sell unpaid debt to companies that would benefit from collecting that money. Undue Medical Debt takes advantage of this arrangement and buys debt for pennies on the dollar, but instead of collecting the debt, it cancels it.
County supervisors estimate that, using this model, They can spend 5 million dollars to cancel $500 million in debt for 150,000 low-income residents. Medical debt in Los Angeles County exceeds 2.9 billion dollarsaccording to an analysis by the county public health department.
New York City and Arizona have struck similar deals with the same nonprofit. And last week, New Jersey Democratic Gov. Phil Murphy announced the state would use leftover pandemic relief funds to eliminate $100 million in medical debt of 50,000 residents.
Democratic presidential candidate Kamala Harris has pledged to build on the current administration’s efforts to remove medical debt from credit reports by incorporating debt forgiveness. Among her campaign promises: “Work with states to cancel medical debt for millions of Americans.”
Last month, The Washington Post reported that Harris had been working with North Carolina to incentivize hospitals there to forgive patients’ medical debt in exchange for additional Medicaid funding. In mid-August, North Carolina Democratic Governor Roy Cooper announced that all 99 hospitals in the state had agreed to participate in this program. About 2 million low- and middle-income North Carolina residents are expected to benefit starting next summer.
This story was produced with support from the California Health Care Foundation (CHCF), which works to ensure people have access to the care they need, when they need it, and at a price they can afford. Visit www.chcf.org for more information.
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