STEVE INSKEEP, HOST:
The Consumer Financial Protection Bureau says it's giving millions of Americans a fresh start by removing medical debt from their credit reports. This is a big deal because medical debt affects about one out of every five Americans. Wow. Medical debt can weigh down a person's credit score for years, so what does removing that debt from the score mean for consumers - and for the credit industry? We'll discuss this with Benedic Ippolito, who's an economist with the American Enterprise Institute, which advocates for free enterprise among other things. Good morning, sir.
BENEDIC IPPOLITO: Good morning. Thanks for having me.
INSKEEP: OK, let's talk this through. What happens now if somebody goes to the hospital and they're told, oh, your insurance doesn't cover these thousands of dollars of charges? What happens now and what would change?
IPPOLITO: Well, typically, when consumers go to a hospital or a doctor's office, if they don't pay the bill they're cost-sharing, then that bill could be sent to what's called a collections agency. And eventually, that collections agency can report that on a consumer's credit profile. And so what that functionally means is that that shows up as what we call a derogatory mark and can reduce your credit score.
INSKEEP: OK. Is that - that's - is that reasonable? Is that as reasonable as any other kind of debt? If I went to the - if I didn't pay my ordinary credit card bill, it would go on my credit card score. Why shouldn't medical debt go in the same way?
IPPOLITO: Yeah, so, I mean, you're asking a question that I think you hear often. And I think policymakers are right that medical debts are different from other debts in at least certain ways. Health care billing is complicated. I think many people know that mistakes happen. Some health care is unexpected, and it's expensive. And so it can seem unfair that consumers are saddled with debts that are the results of billing mistakes or car accidents, and suddenly it hurts their credit scores. That said, most debts aren't those debts. Many reflect truly unpaid bills. And, in fact, many stem from much more routine interactions with the healthcare system than I think most people expect. Most of these medical collections that the CFPB is targeting here are $200 or $300. And while that's not to say that those are trivial, it matters because it affects what kind of trade-offs the policy might have. In other words, it's not just affecting car accidents. It's affecting all sorts of different interactions with the health care system, the health care market.
INSKEEP: Yeah. I'm wondering if we're aiming in the right place here. We have this special series on NPR called Bill of the Month where we go into medical bills. They're often outrageous. They come out of nowhere. They're bills for nothing. They're bills that people had no reason to expect. They were even told the charge would be something else, and suddenly they're faced with this bill of thousands of dollars. But shouldn't the health care industry be targeted for that, rather than changing someone's credit score?
IPPOLITO: Yeah, so I think - I'm certainly very familiar with your series (laughter). And I think you highlight many of the most sympathetic cases and, frankly, the most outrageous cases - the cases that are the truly unexpected and large bills that really ought to be covered. That said, that's actually not really most of what we're talking about when we talk about medical debts. And I think that's one of these misconceptions that people have. And it's important to keep in mind because it means that if you start changing the incentives that consumers face, you're going to start changing incentives - not just for these rare, one-off circumstances that lead to these truly outrageous situations, but rather, you're going to affect just about all interactions with the health care system. And you have to think about, how are other actors going to respond, like hospitals or doctors?
INSKEEP: Wait a minute. Are you talking about what they call moral hazard now - that I...
IPPOLITO: (Laughter).
INSKEEP: ...Might just decide not to bother to pay the co-pay that I really should pay?
IPPOLITO: Well, I mean, you know, this is the kind of thing that gives economists their bad reputation. But unfortunately, yes, exactly right. So, I mean, we've actually seen hospitals and doctors already respond to these incentives. So, you know, by design, eliminating medical debts from credit reports reduces the consequences of not paying a health care bill, which - of course, that's the whole point of the policy, but it does reduce the incentive to pay the bills. And we've already seen hospitals and doctors become very aware of the fact that they collect a modest share of what consumers owe in the current market.
So some reports suggest that they only collect around half of what patients owe, and so this kind of policy is likely to reduce that rate further. And that may or may not be a good thing. But you do have to think about how providers are going to respond to that, and we've already seen evidence that providers are seeking more payment, for example, ahead of service. So that's important. If you're somebody who may or may not be able to afford a bill, now, suddenly, you might not be able to get the service if you can't pay ahead of time, compared to the status quo. So there are important trade-offs to consider.
INSKEEP: Are credit agencies going to just go along with this, as well as the companies that rely on the credit agencies, or are they going to find some way around it? In about 10 seconds.
IPPOLITO: So I think this is one big question mark. I fully expect somebody to challenge this bill, or this rule, and one big question is whether the Trump administration is actually going to defend it.
INSKEEP: Benedic Ippolito is an economist with the American Enterprise Institute. Thanks for your insights. I really appreciate it.
IPPOLITO: Thanks for having me. Transcript provided by NPR, Copyright NPR.
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