The Daily Dish
September 25, 2023
What Medical Debt?
You gotta hand it to the supremely principled Biden Administration. With hospitals, it is pursuing utter transparency of pricing decisions. The same holds for the legislative efforts it supports regarding pharmacy benefit managers. Then there are its efforts to shine a bright light on every “junk fee” hiding in the corners of the economy. And don’t forget the incredibly burdensome-without-any-benefit new disclosures the Federal Trade Commission is proposing for the Hart-Scott-Rodino Act. I could go on.
But when it comes to medical debt: hide it. Per CNN, the Consumer Financial Protection Bureau (CFPB) – which itself lives under a cloud because both its funding and structure have been found unconstitutional – is set to propose a rule to make medical debt disappear from credit reports: “If the rule is finalized, consumer credit companies would be barred from including medical debt and collection information on reports that creditors use to make underwriting decisions. Creditors would only be able consider non-medical information when evaluating borrowers’ loan applications.”
This makes no sense from two perspectives. First, what exactly is “medical debt” in evaluating the financial condition of a prospective borrower? Suppose I had $1,000 in credit card bills, $1,000 in medical debt, and only $1,000 available. I could pay the credit card bill and have $1,000 in medical debt. I could pay half of each and have $500 in medical debt. Or, I could pay the medical bill and have zero medical debt. In each instance, I would currently have a credit report with $0, $500, or $1,000 in medical debt and exactly the same creditworthiness. Since money is fungible, it is better to look comprehensively at the financial condition of the borrower.
This flags the second big problem. It is never better to have less information when making credit decisions. The CFPB is proactively degrading lending standards, which is the route to poorer underwriting and more bad debt, not the reverse. If the administration wants to help specific people, have the transparency to propose a transfer system to those individuals and get Congress to pass it.
This attempted backdoor transfer by degrading credit reports is poor governance, bad policy, and will ultimately fail to help anyone.
Fact of the Day
Employers provide health care coverage to 153 million nonelderly people with two-thirds enrolled in a self-insured plan in the United States.