Medical debt removed from credit reports

New York has become the second state in the United States, following Colorado, to pass a law that eliminates the reporting of medical debt in credit reports. The bill, signed into law by Governor Kathy Hochul on Wednesday, aims to alleviate the burden faced by residents grappling with the financial aftermath of medical expenses.

Under this new legislation, credit agencies are prohibited from collecting information about medical debt and reporting it. Additionally, hospitals and healthcare providers within the state are barred from reporting such debt to credit agencies. This landmark decision comes as the federal Consumer Financial Protection Bureau considers a similar nationwide measure.

Governor Hochul, a Democrat, expressed her concern for the detrimental impact of medical debt, particularly on low-income earners. She emphasized that this cycle keeps individuals trapped in a perpetual state of financial strife and restricts their ability to improve their circumstances. Speaking at the bill signing ceremony in New York City, she stated, “No one should ever have to make a horrible choice between their physical health and their financial health.”

While the law will take effect immediately, it is important to note that not all medical debt will be exempt from impacting credit scores. Debt charged to a credit card, unless specifically issued for health services, will not fall under the protection of this law. Furthermore, it does not apply to out-of-state healthcare providers.

The implications of unpaid medical debt can be far-reaching, hindering individuals from securing housing, obtaining car loans, or even finding employment due to negative credit reports. Advocates for the law argue that credit reports, designed to assess financial responsibility, fail to consider unforeseen circumstances such as illness or injury.

According to a study conducted by the Urban Institute, a nonprofit research organization, more than 740,000 New Yorkers had unpaid medical debt in collection agencies as of February 2022. Alarming disparities were also observed, with communities of color experiencing higher rates of medical debt compared to predominantly white communities across most regions in the state.

Although three major US credit reporting companies had previously agreed to stop considering unpaid medical debt over $500, advocates argue that this alone is insufficient. The Urban Institute study found that in New York’s lowest-income communities, over half of consumers with medical debt owed $500 or more.

Despite objections from Republicans, state lawmakers approved the legislation in June. Critics argued that the legislation was too broad and should only apply to emergency care.

New York’s groundbreaking decision to remove medical debt from credit reports marks a significant step toward providing relief for residents burdened by healthcare expenses. By acknowledging the need for a more compassionate approach to financial assessment, the state sets a precedent in prioritizing the well-being of its citizens.