New Bill Would Ease Pain of Medical Debt

The Medical Debt Relief Act of 2009 (HR 3421), recently introduced by Ohio Rep. Mary Jo Kilroy proposes only one simple change in the law, but it could make a significant difference to millions of consumers.   The bill would require that medical debt that has been paid off or settled be removed from a consumer’s credit records within 30 days.

As things stand now, medical debt that has been completely paid off or settled can significantly damage a consumer’s credit score for seven years, making it much more expensive – or even impossible – to obtain a mortgage loan, auto loan, or credit card.

The Dallas Morning News printed an informative story on the problem addressed by proposed legislation, and ABC-6 News in Columbus, Ohio (in Rep. Kilroy’s district) explains the issues this way:

Rep. Kilroy argues that medical debt is unique and deserves to be treated differently than other debt:  “Americans don’t choose when accidents happen or when illness strikes.”  Or, in the words of the proposed legislation, medical debt is “of questionable value in predicting future payment performance because it is atypical.”  In fact, a common sense judgment would seem to be that people who manage to successfully pay off a medical debt should be regarded as more, rather than less, creditworthy.

Medical debt is not a small problem.  According to a report from the Commonwealth Fund, 79 million adults had medical debt or bill problems in 2007.  Hospitals and doctors generally don’t report on medical debt to the credit rating agencies, but outstanding debts are increasingly turned over to collection agencies, who do contribute reports.  In 2007,  28 million working-age adults were contacted by a collection agency about outstanding medical bills.

For more on medical debt, see the Access Project’s 2005 report, Home Sick:  How Medical Debt Undermines Housing Security, or this short article by Mark Rukavina, the Access Project’s Executive Director, in the summer 2009 issue of the Federal Reserve Bank of Boston’s Communities and Banking.