'Caught in a doom loop': Medical billing mistakes harm consumers in credit reports

Not only are mistakes common in the U.S. medical billing system, but it is difficult for consumers to correct or resolve those errors.

“When it comes to medical bills, Americans are often caught in a doom loop between their medical provider and insurance company,” said Rohit Chopra, director of the Consumer Financial Protection Bureau. “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.”

Related: Majority of people have received unexpected medical bills in the past year

A new report from the bureau details how medical bills often are incurred through unexpected and emergency events, are subject to opaque pricing and involve complicated insurance or charity care coverage and pricing rules. In emergency situations, patients might not even sign a billing agreement until after receiving treatment. In other instances, patients, including those with chronic illnesses or who are injured or ill, may desperately feel that the need for medical care forces them into accepting any costs for treatment.

When those bills end up in collections, the repercussions can be far-ranging. Medical bills placed on credit reports can result in reduced access to credit, increased risk of bankruptcy, avoidance of medical care and difficulty securing employment, even when the bill itself is inaccurate or erroneous.

Among the key findings in the report:

• Medical debt affects tens of millions of households. Roughly 20% of U.S. households report that they have medical debt. The bureau found that medical collections tradelines appear on 43 million credit reports.
• COVID-19 has made the situation worse. Both uninsured and insured patients incurred substantial costs to cover COVID-19 related services, including testing and hospitalization.
• Medical debt affects households unevenly. Past-due medical debt is more prevalent among Black (28%) and Hispanic (22%) than white (17%) and Asian (10%) individuals. Medical debt also is more common in the Southeastern and Southwestern United States, in part because some states in those regions did not expand Medicaid coverage.
• Medical debt weakens underwriting accuracy. Previous research has shown that medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations.

In response, the bureau intends to hold credit reporting companies accountable, work with federal partners to reduce coercive credit reporting and determine whether unpaid medical billing data should be included in credit reports.