California governor signs law banning medical debt from credit reports

By Molly Castle Work for KFF Health News

Californians with medical debt no longer have to worry about unpaid medical bills showing up on their credit reports. This emerges from a law signed by Governor Gavin Newsom on Tuesday.

The Bill by Senator Monique Limón (D-Santa Barbara), and supported by Democratic Attorney General Rob Bonta, will prevent health care providers and any contracted debt collectors from sharing a patient’s medical debt with credit reporting agencies. At least eight states have banned medical bills from consumer credit reports in the past two years. In June, the Biden administration has proposed similar federal protections, but it is unclear when the rules will take effect — or, if former President Donald Trump is re-elected, whether they will take effect at all.

“Nobody chooses to get sick and then your credit is ruined,” said Chi Chi Wu, a senior attorney at the National Consumer Law Center. “That’s why we encourage states to continue to pass legislation. If something goes wrong at the federal level, the states could protect their own consumers.”

When California’s new law takes effect in January, these protections will be extended to credit reports used for employment and tenant verification, Wu said. This is in addition to the proposed federal ban on reporting to credit agencies that inform credit card companies and mortgage lenders.

California lawmakers noted that medical debt — unlike other types of debt — does not reflect an accurate picture Credit risk is high, and its inclusion can lower credit scores and make it difficult for people to get a job, rent an apartment, or secure a car loan.

But the California legislature has left a glaring loophole. Patients who pay hospital bills with medical credit cards or specialty medical loans – which may incur interest As high as 36% – these debts will not be removed from their credit report as residents of Colorado, Minnesota and new York Do. It’s a Concession won by the financial industry through late-game “hostile” amendments that “influential entities opposed to the measure prevailed upon their inclusion,” Limón said. In 2022 According to a KFF medical debt survey, 15% of adults reported using a medical credit card.

Kelly Parsons-O’Brien, legislative chair of the California Association of Collectors, which represents debt collectors, said the exceptions are essential because medical credit card holders can purchase non-medical items and medical loans can be refinanced with non-medical debt, making this “impossible.” make. so that creditors know what a medical burden actually is.

“More consumers will find themselves in situations where they cannot afford to pay and lenders will operate in the dark,” Parsons-O’Brien said.

The three largest U.S. credit agencies – Equifax, Experian and TransUnion – said they would stop listing some medical debts, including discharged debts and debts under $500, but millions of patients were left with higher medical bills on their credit reports. The Consumer Financial Protection Bureau reported in April that 15 million Americans still had medical bills on their credit reports.

Um four in 10 Californians They are reportedly carrying some form of medical debt, which disproportionately affects low-income, Black and Latino patients, according to the California Health Care Foundation.

Dozens of states have passed laws to protect consumers from surprise bills and medical debt, according to the National Conference of State Legislatures. Newsom, a Democrat, also signed legislation Tuesday Ban hospitals from using liens on all properties owned by Californians who typically earn less than 400% of the federal poverty level. It expands current state law that protects a patient’s home from debt collectors.

A KFF Health News analysis found that credit reporting is the most common debt collection tactic used by hospitals to get patients to pay their bills. A ban on credit scoring could make it harder for hospitals to collect on loans.

When Sacramento resident Sonia Hayden and her boyfriend applied for a home loan last year, she discovered that her credit score had dropped about a hundred points. The rating had been downgraded due to a roughly $200 emergency room charge after a car accident years ago.

The 44-year-old said her insurance covered tens of thousands of dollars in medical bills, but the hospital misreported the $200 cost and she never received a bill for it. That too should have been attributed to the insurance, she said.

Hayden tried unsuccessfully to resolve the issue with her health insurance for over a year. It’s still on her credit report. She was eventually able to get a home loan, although her interest rates were higher due to her creditworthiness.

“Medical bills are not intentional, you know,” said Hayden, who testified in support of the legislation. “It was a super traumatic accident. I almost died. And then there’s that super stressful medical bill – no one asks for that. It shouldn’t affect your credit score.”

This article was created by KFF Health Newsthat published California Health Linean editorially independent service California Health Foundation.