'Our medical system is a mess,' Elizabeth Warren tells Capitol Hill hearing on credit-reporting bureaus

By Zoe Han

Senators urged credit-reporting agencies to take the medical debt off consumer credit reports completely in a hearing on Thursday

That's Senator Elizabeth Warren in a U.S. Senate hearing Thursday with the three biggest credit reporting bureaus this week.

Senators urged credit reporting bureaus to take the medical debt off consumer credit reports completely Thursday in a hearing by the Committee on Banking, Housing, and Urban Affairs Thursday.

It's the first time the chief executive officers of all three major credit bureaus, Equifax (EFX), Experian (EXPN.LN) and TransUnion (TRU), testified in front of Congress about approaches to address credit reporting accuracy.

"Most hospitals charge one price and they charge insurance companies another. So medical bills are often a moving target. Bills are routinely sent to the wrong party," Warren said in the hearing. More than 15 percent of adults in the United States report past-due medical debt, with nearly 73 percent owing some or all of that debt to hospitals, according to a recent Urban Institute report

Hospitals say the real cause is not enough health care coverage and deceptive health plans.

"Inadequate enrollment in comprehensive health care coverage and high-deductible health plans that intentionally push more costs onto patients" are the two "chief driving forces" behind the numbers and the trend, American Hospital Association said in a recent blog in response to the Urban Institute report.

"Hospitals and other providers do not determine how much insured patients owe for their care. Instead, that amount is set by the health plan," the AHA wrote in the blog.

Hospitals have a financial assistance policy to help those most in need but can only help so much and so many, the organization continued.

"And no matter how generous, hospital financial assistance will never be a substitute for a health plan that covers preventive and necessary care at an affordable price on the front and back end of coverage," the AHA said.

The U.S. Department of Health and Human Resources did not respond to the request to comment.

Although the credit reporting agencies are "the last link in a very problematic chain of actors" that include hospitals, insurance companies and medical credit card issuers, Warren said that "credit reporting agencies are the ones who turn all of that bad data into a real pain for American consumers."

"You're the ones who cost them real money more than just those bills in every part of their lives. And it is time to start holding every link in this chain accountable," Warren said in the hearing.

Medical debt is less predictive of a person's ability to pay back debts, Senators said, but has a significant impact on consumers' credit reports and infringes on their ability to get affordable loans to purchase cars or get housing.

Consumer advocates told MarketWatch in the past that medical debt isn't a good sign of a person's capacity to pay back loans because they can't control when major medical events happen.

The three major credit bureaus in the U.S. stopped counting medical debts below $500 in credit reports last July, and allow one year buffer time before the debt shows up on consumer credit reports. 70% of medical debt is no longer visible on reports.

Approximately 15.6 million people have all of their medical collections removed from their credit reports because of this, according to the Consumer Financial Protection Bureau's data that came out this week. And for those who have at least one removed, it's 22.8 million people.

Because of the change, people on average experience a 25-point increase in their credit score in the first quarter they saw their medical debt removed, the CFPB finds. The average increase is 21 points for those with medical collections under $500 and 32 points for those over $500.

Credit reporting bureaus voluntarily removing some medical debt is a positive first step, but not enough, said the committee chair Senator Sherrod Brown (D-OH) in the opening remarks. "If you have $1,000 in medical debt, you're no less credit-worthy than someone with $500. It stems from the same problem -- someone in your family or you got sick," he added.

The credit reporting bureau executives said credit reporting around medical debt is a complex issue and did not give a clear answer whether they would make additional moves to remove the rest of the medical collection off credit reports.

"If the CFPB directed us, of course we would comply with that. If the CFPB concluded that it was so problematic and that the industry also agreed that there wasn't an issue in removing that data from credit reports, then we would do so too," said Experian CEO Brian J. Cassin in response to Senator Warren. "But I think it is a complex issue, Senator, and I think it needs to be looked at in the broad."

-Zoe Han

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04-30-23 1342ET

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