Californians with medical debt will no longer have to worry about unpaid medical bills showing up on their credit reports under legislation signed Tuesday by Gov. Gavin Newsom, adding the nation\u2019s most populous state to a growing effort to protect consumers squeezed by unaffordable medical bills.<\/p>\n
The bill, by Sen. Monique Lim\u00f3n<\/a> (D-Santa Barbara) and backed by Democratic Attorney General Rob Bonta, will block health care providers, as well as any contracted collection agency, from sharing a patient\u2019s 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 proposed similar federal protections<\/a>, but it\u2019s unclear when the rules will be enacted \u2014 or, if former President Donald Trump is elected again, if they will be at all.<\/p>\n \u201cNobody chooses to get sick, and then your credit gets ruined,\u201d said Chi Chi Wu, a senior attorney with the National Consumer Law Center. \u201cThat\u2019s why we encourage states to keep adopting laws. In case something goes wrong at the federal level, the states could protect their own consumers.\u201d<\/p>\n When California\u2019s new law goes into effect in January, it will extend these protections to credit reports used for employment and tenant screening, Wu said. This is in addition to the proposed federal ban on reporting to credit agencies that inform credit card companies and mortgage lenders.<\/p>\n California lawmakers noted that medical debt \u2014 unlike other kinds of debt \u2014 isn\u2019t an accurate reflection<\/a> of credit risk, and its inclusion can depress credit scores and make it hard for people to get a job, rent an apartment, or secure a car loan.<\/p>\n But California lawmakers have left a glaring loophole. Patients who pay hospital bills using medical credit cards or medical specialty loans \u2014 which can come with interest rates as high as 36%<\/a> \u2014 won\u2019t get that debt taken off their credit report, as residents of Colorado<\/a>, Minnesota<\/a>, and New York<\/a> do. It\u2019s a concession the financial industry won<\/a> through late-in-the-game \u201chostile\u201d amendments, which \u201cinfluential entities opposed to the measure prevailed\u201d in including, Lim\u00f3n said. In a 2022 KFF poll on medical debt<\/a>, 15% of adults said they had used a medical credit card.<\/p>\n Kelly Parsons-O\u2019Brien, legislative chair of the California Association of Collectors, which represents collection agencies, said the exemptions were essential because medical credit card holders can buy nonmedical items and medical loans can be refinanced with nonmedical debt, making it \u201cimpossible\u201d for creditors to know what\u2019s actually a medical charge.<\/p>\n \u201cMore consumers will get into situations where they cannot afford to pay, and lenders will be operating in the dark,\u201d Parsons-O\u2019Brien said.<\/p>\n The three largest U.S. credit agencies \u2014 Equifax, Experian, and TransUnion \u2014 said they would stop listing some medical debt, including paid-off debts and those less than $500, but millions of patients were left with bigger medical bills on their credit reports. The Consumer Financial Protection Bureau reported in April<\/a> that 15 million Americans still had medical bills on their credit reports.<\/p>\n About 4 in 10 Californians<\/a> report carrying some type of medical debt, which disproportionately affects low-income, Black, and Latino patients, according to the California Health Care Foundation.<\/p>\n Dozens of states<\/a> have enacted legislation to protect consumers from surprise billing and medical debt, according to the National Conference of State Legislatures. Newsom, a Democrat, also signed legislation on Tuesday banning hospitals from using liens<\/a> on all real property owned by Californians who typically earn less than 400% of the federal poverty level. It expands current state law that protects a patient\u2019s home from debt collectors.<\/p>\n A KFF Health News analysis<\/a> found that credit reporting is the most common collection tactic used by hospitals to get patients to pay their bills. A credit score ban might make it more difficult for hospitals to collect.<\/p>\n When Sacramento resident Sonia Hayden and her boyfriend applied for a home loan last year, she discovered her credit score had dropped about a hundred points. It had been downgraded because of an approximately $200 emergency room charge after a car accident years ago.<\/p>\n The 44-year-old said her insurance covered tens of thousands of dollars in medical bills but that the hospital miscoded the $200 charge and she never received a bill for it. That, she said, should also have been charged to insurance.<\/p>\n Hayden tried unsuccessfully for over a year to resolve the issue with her health insurer. It\u2019s still on her credit report. She was eventually able to get a home loan, but her interest rates were higher because of her credit score.<\/p>\n \u201cMedical bills, they\u2019re not on purpose, you know?\u201d said Hayden, who testified in support of the legislation. \u201cIt was already a super traumatic accident. I almost died. And then to have this super stressful medical bill \u2014 nobody\u2019s asking for that. It shouldn\u2019t affect your credit.\u201d<\/p>\n This article was produced by <\/em>KFF Health News<\/em><\/a>, which publishes <\/em>California Healthline<\/em><\/a>, an editorially independent service of the <\/em>California Health Care Foundation<\/em><\/a>.<\/em>\u00a0<\/p>\n KFF Health News<\/a> is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF\u2014an independent source of health policy research, polling, and journalism. Learn more about KFF<\/a>.<\/p>\nUSE OUR CONTENT<\/h3>\n