Highlights from Rohit Chopra’s Reddit AMA

While this is a nice step, is this just a symptom of a greater problem?

Medical billing is simply out of control. From the costs of services, costs of good, and even the very act of billing itself….

It’s an incredible whirlwind where every actor involves seems to keep one-upping itself on how to charge more and more.

Is there any substantial steps happening to get this fixed?

Medical billing coders make anywhere 50k-60k a year to ensure they are capitalizing for their companies, and not for clients. We even have someone on the medical coder sub reporting they make $64.50 a hour. When a member of the billing team is making more money then the nurse trying to care of the client, we have a huge problem.

While I can only suspect others agree with me, I’d feel better about paying my medical bills if I felt they were transparent and fair.

You bring up a great point about the broader context of this proposed rule. The CFPB is part of an all-of-government effort to address the burden of medical debt and lower healthcare costs for consumers.

 Medical billing and collection practices have lasting effects on people’s financial, physical, and mental health. Poor medical billing and collection practices can result in patients delaying or declining needed medical care while they struggle to cope with the financial consequences of the debt burden placed upon them, even when that debt burden derives from predatory pricing, faulty, inaccurate billing, or insurance company runarounds. In fact, consumers report that errors in medical billing and insurance payment are common. Among those with medical debt, more than four in ten say they received an inaccurate bill, and nearly seven in ten say they were asked to pay a bill that should have been covered by insurance. We are continuing to study the medical billing system and are considering our options in this area.

 We have launched a public inquiry with the Department of Treasury and the Department of Health and Human Services to gain a better understanding of these products that are peddled to patients.

 Medical payment products include special-purpose credit cards and installment loans used to cover the cost of medical treatment. While medical payment products can offer an enticing promise of cost savings, convenient payment plans and administrative ease for medical providers, our research indicates that in many cases, patients who use these products end up worse off. We are considering studying these products and are also considering our options in this area.

The rule, if finalized, would prohibit credit reporting companies from including medical debts on credit reports sent to lenders, and this includes historic medical billing information. So medical debts that were incurred even five years ago would not be allowed to show up on your credit report.  

Credit reporting companies would need to adjust their internal databases in different ways to comply.

Is the CFPB considering expanding the new rules to include a ban on reporting consumer credit card debt that was accrued from paying medical bills, and a ban on medical credit cards?

We encourage you to submit a comment to our rulemaking docket on this.

 While our proposal focuses on medical bills that are on credit reports, we know that people use all sorts of financial products to pay health care expenses.

So im confused, most medical debt is mo longer reported to credit bureaus. Private medical as in cosmetic and others can be. Is this to help the ones who already have it on thier reports?

So, in 2022, after the CFPB published research about the use of medical bills in credit reports and scores, the three credit reporting conglomerates (Equifax, Experian, and TransUnion) announced they would be taking a chunk of medical bills off of credit reports.

We analyzed this carefully, and we still find that there’s a substantial amount left.

In addition, while the credit reporting conglomerates did this voluntarily, the rule, if finalized, would prevent them from giving it to creditors.

It seems like medical providers would respond to this rule by requiring up front payment and peddling more predatory third party credit. Are you worried about that?

Right now, when it is possible, there is already a strong economic incentive to require up-front payment, and it is quite common. For example, basically every pharmacy requires upfront payment.
Where it’s not happening currently, it’s largely because it’s not feasible, like when a bill can’t be calculated until a claim is filed with insurance.
Currently we see about a 25 percent recovery rate used as a benchmark. We expect that it is unlikely that a decrease in the recovery rates of furnished medical debt would cause providers to substantially change their billing procedures.
 We do not think this proposal will have an impact on up-front payment.

Wouldnt this just reduce the usefulness of credit scores in assessing risk for financial institutions, leading to worse lending terms for consumers?

That’s a great question. We’ve done extensive research on whether medical bills on credit reports are predictive of whether a consumer repays their other loans.

What we’ve found is that the predictive power is really limited. And that makes sense, because signing up for a mortgage or auto loan is totally different. In those loans, you typically are signing up to finance a specific purchase with a specified monthly payment amount. When you receive medical care, you typically only figure out after the fact. There’s often complications later when it comes to insurance.

Our research has found that medical debt unfairly penalizes people’s credit scores, and that helped to inform our approach here.

What incentives will people with medical debt have to attempt to pay it? This seems like it just legalizes electing to default on debt without any consequence.

Good question. There’s actually lots of different types of bills we’re asked to pay in life that aren’t on our credit report. And people do pay them.

 And when it comes to medical bills, people can still face big consequences for not paying, including hospitals or other medical providers taking them to court.

 Unfortunately, we’ve seen how credit reports can be used as a weapon to coerce someone into paying a debt they may not even owe.

I’ve personally seen a lot of bills with serious inaccuracies. Unfortunately, people sometimes will pay a debt they don’t owe when their credit report is tarnished.

What kind of medical debt will be banned? Or is this bill all encompassing?

We have proposed to define “medical debt” as medical information concerning debt owed to a person who primarily provides medical products or services, which includes medical bills that are not past due or that have been paid.

 More specifically, this means medical information that pertains to a debt owed by a consumer to a person whose primary business is providing medical services, products, or devices (e.g., a medical or health care provider), or to the person’s agent or assignee, for the provision of such medical services, products, or devices.

Are insurance companies involved in this? Have they provided reasoning for the charges in the first place or are there efforts to understand how these debts are created in the first place? As a person with a chronic illness that is rather expensive to manage even with insurance, I live in constant terror of accidentally getting treated by an out of network doctor or getting charged a code that we didn’t anticipate.

Is this just going to make my insurance premiums and deductibles just go higher?

One of the reasons that we see so many inaccuracies in medical bills is that people get stuck in a doom loop of disputes between their insurance company and their medical provider. It’s not always clear who really owes what amount, and what should be covered by insurance.

 This is made worse when the bill goes to collections, and the debt collectors have no ways of verifying the underlying accuracy of the bill. Our proposal would help ensure that people aren’t penalized for companies’ mistakes.

How will removing medical debit help Americans long-term? Won’t this activist regulatory approach merely drive up medical costs for all Americans, ultimately hurting the very people you are supposedly protecting?

The proposal would prohibit credit reporting companies from including medical debts on credit reports sent to lenders, and this includes historic medical billing information.

We expect that Americans with medical debt on their credit reports could see their credit scores rise by 20 points, on average, if the proposed rule is finalized.

The CFPB expects that this could in turn lead to the approval of approximately 22,000 additional mortgages every year.

Are you concerned that once consumers know that their medical debt isn’t reported to credit that they will take on more debt than they can afford to pay back? Or that they may forgo purchasing insurance? What is the incentive for them to pay if there is no recourse? Are you concerned that more consumers would have claims filed against them in court in order to collect, costing the consumer even more money? Are you concerned about health care providers and facilities losing revenue? Are you concerned that the economy is going to lose $17 billion dollars because providers can’t recoup the money they are owed? I thought we learned our lesson during the 2008 financial crises that loaning money to subprime consumers has far and wide consequences. This proposal is setting consumers up to fail, health care systems to collapse, and the economy to suffer.

We’ve answered some of these on other posts, but I will add a few points here as well.

Are you concerned that once consumers know that their medical debt isn’t reported to credit that they will take on more debt than they can afford to pay back? Or that they may forgo purchasing insurance?

No, it seems unrealistic that people would forgo insurance.

 Generally, it is our experience that when people get bills, they want to pay them. Patients without insurance would still receive higher bills and still be subject to significant consequences for not paying medical bills. 

 Are you concerned that more consumers would have claims filed against them in court in order to collect, costing the consumer even more money?

 This is not something we view as likely.

 Repayment rates for medical debt in collections have been historically quite low, and pursuing additional lawsuits as a result of the proposed rule is not likely to result in an increase in marginal recovery rates.

 We do not have data to directly compare the relative efficacy of furnishing and litigation for inducing payment. So we are requesting data there.

 Are you concerned about health care providers and facilities losing revenue?

 Our observation is that consumers pay their bills. Taking bills off credit reports is not likely to have a substantial impact on the health care industry for a variety of reasons, including that a lot of the incentives are driven by insurance and not by self-paid bills.

 Many honest providers work closely with their patients to make sure their bills are accurate, and we’ve seen a lot of medical bill collection occur by those who do not rely on credit reporting.

 Are you concerned that the economy is going to lose $17 billion dollars because providers can’t recoup the money they are owed?

 We actually see a lot of benefits to the economy, and we’ve even developed estimates on how it could help more people qualify for mortgages (we expect it would lead to the approval of about 22k additional mortgages every year). And as I mentioned above, we expect patients to continue paying providers.

Credit reports are an inherently classist and flawed system heavily influenced by redlining and discrimination since it was created. Why are these not replaced or completely done away with as they should have been decades ago? While I’m unsure how much power you have is it something you would personally advocate for?

There’s a lot of concern about whether credit reports and scores are reinforcing structural barriers in our economy.

There’s a growing consensus that the status quo isn’t really working. Many people are blocked from the system, especially when they lack a credit history. And many lenders tell us that credit scores are becoming less and less useful.We’ve put a lot of thought into how the system could work with different types of data, rather than the existing scoring system.

One of the things the CFPB has been working on is the future of personal financial data. Many people are blocked from the system, especially when they lack a credit history. This leads to serious problems for our society.

We’re doing a lot on this front, and we’ve proposed some new rules that will allow people to share different types of information when they apply for a loan – we want to give people the power to walk away from bad service and choose the companies offering the best products.