Will a big change in credit reporting mean a big change in employer health care costs?

In March, the three private companies that keep credit information on more than 200 million people in the United States announced that certain kinds of medical debt would no longer be used in calculating credit scores.

Under pressure from federal regulators and a growing body of data that medical debt is not a good predictor of creditworthiness, Equifax, Experian, and TransUnion said that they would no longer use medical debts that were paid after they went to collections. This change will eliminate up to 70% of the medical debt that appears on credit reports. The decision went into effect on July 1. Beginning in 2023, the credit-reporting companies will also exclude unpaid medical collection debts under $500.

Related: Which states are the best (and worst) at protecting residents from medical debt?

This decision could change the way that people use their health care benefits, making it more likely that employees will use their health benefits, even when it could mean having to pay hefty out-of-pocket expenses. It’s a change that’s likely to affect people at the greatest risk of having medical debt, which includes younger adults and people of color.

As an employer, here’s what you need to know to prepare yourself and your employees for the change.

The scope of the medical debt problem

Here’s what we do know: With 100 million Americans in medical debt, even a marginal change could have an outsized impact, simply from the sheer number of people who hold medical debt. (A different study estimated that 61% of respondents who get their insurance through their employer have medical debt.) One expert commented, “Debt is no longer just a bug in our system. It is one of the main products. We have a health care system almost perfectly designed to create debt.”

Numerous studies have found that people who have medical debt or trouble paying their medical bills are more likely to have health issues. Debt stress can lead to mental health issues, which may increase other behaviors affecting health, including smoking and increased alcohol consumption. Financial instability limits housing choices, which can result in living in neighborhoods that have less access to parks and recreational opportunities or healthy food.

Medical debt can impact how much health care people consume. Higher levels of debt (and medical debt more specifically) may be associated with lower levels of use of health care. For example, a study in 2013 found that individuals with debt, particularly credit card and medical debt, were more likely to have forgone medical or dental care in the prior 12 months. A 2011 study in Arizona found that people who were without insurance had problems paying medical bills or were currently paying off medical debt were more likely to delay medical care than they otherwise would have been.

Here’s what we don’t know: Will the change in the credit report rules affect the amount of health care that people consume? It could be that the changes increase elective care and have a greater impact on individuals for whom a change in their credit scores would affect their ability to make major purchases like a house or a car. However, it could also be that the change does not make a significant difference in the amount of health care that people consume because it only changes whether the debt is used to calculate credit ratings, rather than affecting medical debts themselves.

As a consequence, for now, a wait-and-see approach may be the best course of action.

Communicate about what’s changing — and what isn’t

So while we’re still in a period of uncertainty, what can you as an employer do to help your employees navigate the news?

Be clear about what the change means and clear about what you know and don’t know. Any time changes in health care economics are in the news, employees will look to you to help them understand what’s different. It’s important to be clear about what these changes will do: improve the credit scores of most people with medical debt, which will help them with financial services like credit cards, mortgages, loans, cellphone plans, and insurance premiums. It’s also important to be clear about what they won’t change: It won’t protect them from unexpected or onerous medical bills that lead to debt.

This moment may also be a good time to communicate about how employees can save money on their health care expenses. Some ways they can save include substituting generic drugs for brand-name ones, investing in preventative care, using health savings accounts or flexible spending accounts (if you offer them), choosing in-network providers, and planning ahead for urgent care.

Looking ahead

It remains to be seen whether the changes will impact the amount of health care that people use. After all, the debts themselves won’t be going away, only their effect on credit ratings. Nevertheless, health plan administrators should still pay attention to their costs to track any unexpected shifts in spending that could result from the changes in how credit reports are calculated.

Perhaps more importantly, this is a good moment for employers to communicate with employees about their plans and to highlight ways that they can access necessary care at the lowest cost.