Does medical debt affect your credit score?

About 92% of Americans have some form of health coverage. But that doesn’t mean they don’t have medical bills¹. Even if your health plan has a low deductible and few copayments, your insurance provider will likely only pay a portion of your healthcare costs, leaving you to cover the rest. If you don’t pay your bills in a certain amount of time, they may end up at a collections agency. From there, they can accumulate into staggering medical debt.

Fifteen million consumers have $49 billion in overdue medical bills in the U.S. credit reporting system due to high healthcare costs, billing errors, lack of insurance, and other reasons². Because of the outstanding amount, debt collectors contact individuals about medical bills more than any other type of debt.

While the federal government has introduced measures to reduce medical debt for millions of U.S. families, such as passing the No Surprises Act, Americans still want to know if it impacts their credit score. In this article, we’ll explain how medical debt affects your credit score and how you can avoid having medical debt impact your credit report.

Takeaways from this blog post:

• Unpaid medical debt can impact your credit score if it goes to a collection agency.
• Recent proposed federal regulations aim to remove current and future medical bills from most consumer credit reports, improve consumer protections, prevent damage to credit scores, increase loan approvals, and reduce predatory credit reporting practices.
• Consumers concerned about medical debt impacting their credit reports can take some steps to avoid that challenge, including advocating for an employer-sponsored health reimbursement arrangement (HRA) to help them manage their medical bills.

How does medical debt affect your credit score?

Outstanding medical debt won’t appear on your credit score if it stays with your medical care provider. However, if your bill goes unpaid for at least 90 days, your health provider can send it to a medical collection agency.

Once an outstanding bill reaches a collection agency, the agency must wait one year to report unpaid medical debt to a credit bureau (such as TransUnion, Equifax, and Experian) instead of the previous six-month timeline. This gives individuals more time to pay their bills, seek financial assistance, or work with their health insurance company before it can negatively affect their credit score. Once the collection agency reports the debt, it’ll stay on your credit report for seven years.

In recent years, there have been changes to how medical debt impacts credit scores. TransUnion, Equifax, Experian, and other major credit bureaus began eliminating paid medical debts from credit reports in 2022. As of 2023, medical debt less than $500 won’t impact your credit score³. Lastly, debt collectors and credit bureaus can no longer provide or report inaccurate medical debt.

“If medical bills go unpaid for an extended period, they can significantly tarnish one's credit, potentially sinking a good credit score by up to 100 points,” said Mark Pierce, Founder and CEO of Wyoming Trust & LLC Attorney. “Even though reforms now require credit agencies to remove paid medical debt from credit reports, it doesn't erase the damage instantly. Rehabilitation can be a lengthy process requiring strategic efforts, such as ensuring bills are paid on time, keeping low balances on credit cards, and avoiding the opening of unnecessary credit accounts.”

Can you be held responsible for your spouse’s medical debt?

If you’re married, you may wonder if creditors can hold you responsible for your spouse’s medical debt. Whether this is the case depends on where you live. If you live in a community property state, the law considers you and your spouse equally responsible for any debt taken on during your marriage, including medical debt. Therefore, if your spouse has medical debt in their name, creditors can contact you for repayment—even if the debt isn’t in your name.

The following states have community property laws⁴:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Alaska, South Dakota, and Tennessee allow individuals to enter a community property agreement.

If your state doesn’t have a community property law, it’s considered a common law state. Also referred to as an equitable distribution state, these states don’t hold you responsible for your spouse’s medical debt unless you’re a cosigner on the amount.

However, many states have Doctrine of Necessaries laws⁵. These laws make spouses responsible for each other’s necessary costs, like medical expenses. But, the details of these laws vary from state to state. So, spouses in locations with a Doctrine of Necessities law should research their state’s requirements to understand how it applies to them.

Lastly, if your spouse has passed away, you’re typically not responsible for paying their outstanding debts.

Are there any proposed rules that may impact how medical debt can affect your credit score?

The Fair and Accurate Credit Transactions Act of 2003 prohibited credit lenders from using medical debt information when considering an individual’s loan application. However, a federal regulatory exception allowed creditors to access and use the information anyway. In June 2024, the Biden Administration and the Consumer Financial Protection Bureau (CFPB) proposed a new rule to close the loophole and remove medical debt from the credit reporting system⁶.

If finalized, the proposed rule would amend the Fair and Accurate Credit Transactions Act. It would remove current and future medical bills from most consumer credit reports, improve privacy protections, prevent medical debt from creating bad credit scores, increase loan approvals, and reduce predatory credit reporting practices.

The following are specific details about the proposed federal action:

• Remove the special debt exception: This would eliminate the exception that allows credit lenders to obtain and use an individual’s medical debt information when making lending decisions. Lenders could still use disability income and other benefit information if it’s relevant to the loan request.
• Regulate credit reporting companies: The rule would ban credit reporting organizations from sending creditors a consumer’s credit report that includes medical debt if they believe the creditor will misuse it, such as to consider credit eligibility for business or personal loans.
• Prohibit repossession of medical devices: This would prohibit credit lenders from taking medical devices, such as wheelchairs and oxygen tanks, as collateral. It would also ban them from repossessing the devices if an individual can’t repay the loan.

State government officials are also looking to improve consumer credit reporting regulations. Many states recently introduced additional rules prohibiting consumer credit bureaus from including medical debt on credit reports and scores⁷.

These new laws don’t mean you won’t have to pay your overdue bills. They only mean your credit report won’t include your patient debt. Collections agencies and healthcare providers can still contact you and even take legal action to make you pay your outstanding bills.

What to do if you can’t pay your medical bills

Even if the CFPB ruling passes, it won’t take effect before 2025.

If you have medical bills now, you have several options to tackle them:

• You can negotiate your bill with your medical provider.
• Set up a payment plan with your provider. If your provider is willing to split the bill into monthly payments, you can more easily manage the bill.
• Work with a financial advisor.
• See if you qualify for a 0% APR medical credit card.
• Review any medical bills for errors such as incorrect line items or double billing.

You can also take steps to avoid major medical debt before it happens, including:

• Checking to see what’s covered by your insurance policy before accessing healthcare services, and asking for a cost estimate for planned care.
• Asking if there are more affordable or generic versions of any expensive prescribed medications.
• Asking your employer to offer a health reimbursement arrangement (HRA).

How an HRA can help you pay your medical bills

An HRA is a customizable and formal health benefit employers can offer employees to help them pay for their medical expenses. With an HRA, your employer can reimburse you tax-free for qualified out-of-pocket costs, including various medical procedures, mental health counseling, and sometimes individual health insurance premiums.

With an HRA, employers provide their employees with a monthly allowance to spend on healthcare services. Once an employee provides proof of purchase for an eligible expense, employers will reimburse them up to a set allowance amount.

An HRA can help consumers avoid medical debt by covering an array of out-of-pocket costs that a group policy can’t. Unused HRA funds accumulate by rolling over from month to month until the end of the year. However, if you leave their company, any unspent allowance stays with your employer.

There are three types of HRAs that can help you better manage your healthcare costs:

1. The qualified small employer HRA (QSEHRA): A QSEHRA is for businesses with fewer than 50 full-time equivalent employees (FTEs). The IRS sets maximum annual contribution limits; however, there are no minimum limits. Full-time W-2 employees are automatically eligible for the benefit. But, you must have a health insurance plan with minimum essential coverage (MEC) to participate.
2. The individual coverage HRA (ICHRA): An ICHRA is similar to the QSEHRA, but it’s for employers of all sizes and has no maximum contribution limits. You can opt in or out of an ICHRA based on affordability. But, if you opt-in, you must have a qualifying form of individual health coverage to take advantage of the benefit.
3. The group coverage HRA (GCHRA), or integrated HRA: If your employer offers a group health plan, they can boost it with a GCHRA. You can only participate in this HRA if you enroll in your employer’s group plan. But if you do, your employer can reimburse you for out-of-pocket expenses your group plan doesn’t cover, like deductibles and coinsurance, with no maximum contribution limits. But, group plan premiums are ineligible for reimbursement.

There are more than 200+ reimbursable expenses with an HRA. Eligible expenses include hospital stays, prescription drugs, emergency care, over-the-counter medicine, and more. Because of its flexibility, you’ll have better control over your medical bills and healthcare outcomes.

Conclusion

Currently, your credit score may take a hit depending on the amount of your overdue medical bills. However, the proposed federal ruling may reduce or eliminate how your debt can impact your score, freeing up emotional and financial worry for millions of Americans. While waiting to see if the ruling passes, you must regularly review your credit report and medical bills from your healthcare providers to ensure the information is accurate.

If your employer offers you an HRA, you’ll have a powerful tool to help you reduce the financial burden of out-of-pocket healthcare expenses. By leveraging an HRA, you’ll be in a better position to pay off costly bills before they impact your credit score.

The information in this article isn't financial or medical advice. You should consult the relevant professionals for specific advice about your situation.

1. https://www.healthsystemtracker.org/indicator/access-affordability/percent-uninsured/#Total%20share%20of%20U.S.%20population%20uninsured,%202010%20-%20first%20quarter%20of%202023
2. https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-15-million-americans-have-medical-bills-on-their-credit-reports/
3. https://www.washingtonpost.com/business/2023/04/12/medical-debt-credit-reports/
4. https://www.thetaxadviser.com/issues/2023/dec/community-property-conundrums-abound.html
5. https://www.bills.com/learn/debt/doctrine-of-necessaries
6. https://www.federalregister.gov/documents/2024/06/18/2024-13208/prohibition-on-creditors-and-consumer-reporting-agencies-concerning-medical-information-regulation-v
7. https://www.lexisnexis.com/community/insights/legal/capitol-journal/b/state-net/posts/state-legislatures-turn-attention-to-citizens-crushing-medical-debt