The Truth About Medical Debt and Credit Reporting: Three Things To Know

Medical debt is unfortunately synonymous with healthcare in the United States. Approximately 41% of Americans have debt for medical or dental bills – meaning they are currently owing a bill, being contacted by a collection agency or actively paying off past balances. Furthermore, an April 2024 report from the Consumer Federal Protection Bureau (CFPB) found that 15 million Americans had medical bills on their credit reports, accounting for a whopping $49 million worth of outstanding debt. 

As 2025 brought in a new administration at the federal level, it also brought with it new changes in regards to various facets of healthcare, including you guessed it – medical debt reporting. In January 2025, thanks to Biden-era rulings, the CFPB finalized a rule to free Americans from the weight of medical debt on existing credit reports. Lenders no longer had access to this historic data in credit decisions, including “coding” or contextual data – unless exceptions applied. 

Fast forward to July 2025, a federal judge in Texas overruled the decision nationally, claiming that the former administration’s policy was in violation of the Federal Credit Reporting Act (FCRA). As someone who has spent the better part of 30 years promoting healthcare financial wellness, healthcare financial education and patient advocacy, I am passionate about breaking down what this ruling means for the millions of Americans who currently have or might one day have medical debt.

Takeaway #1: There have been no changes to medical debt reporting. First and foremost, consumers and providers alike should know this – nothing has changed with medical debt reporting on a Federal Level. There was not a ban as the CFPB led us to believe on 1/7/25; it was an announcement of a final rule that never took effect. The default federal standard per the Credit Reporting Agencies and FCRA still governs. Medical debts over $500 are allowed to be reported on a credit report if properly coded and it’s been 365 days following the first collection notice. This gives consumers grace and time to work with the collection agency. 

Fifteen states provide consumer protections, including California, New York and most recently Delaware. Additionally, credit bureaus such as Equifax, Experian and TransUnion have their own set of consumer provisions, including: removal of reporting on paid medical collections, not reporting on medical debt under $500 and requirement of a year-long waiting period before reporting unpaid medical bills. However at the federal level the rule set in place by the previous administration earlier this year is effectively dead.

Takeaway #2: Hospitals can still notify consumers of accounts and collect. In my opinion, the media paints a somewhat dreary picture of the impact of what medical debt reporting on credit checks really is. Headlines often hype up the fact that medical debt reporting is unfair to consumers, and throw around words like “misleading,” “harmful,” and “outdated.” I’d like to present an alternative point of view. 

I believe medical debt reporting offers hospitals and those in collection agencies a powerful tool – leverage. Healthcare is the only industry in the United States where a consumer can walk into a place of service and receive something of value without having to pay either before or after the service is done. These services are critical in nature and can be urgent or emergent. Given the never-ending reductions in payments from federal programs such as Medicare and Medicaid and the increasing impact of patient balances on the hospital’s bottom-line, hospitals are left to operate at a deficit, and guess what? Patient care may suffer due to the lack of patient payments and monetary resources.

Medical debt reporting isn’t just about lenders calculating risk. It’s about hospitals having the opportunity to encourage patient payment, reduce bad debt and ultimately maintain financial independence. 

In short, hospitals need to:

1. Leverage ways to bring cash in the door – Point of service collections help to capture patient balances early in the revenue cycle. Reporting medical debt gives hospitals and collections companies powerful leverage on the back end of the revenue cycle.  It notifies patients of outstanding accounts and provides incentives for timely payment. 
2. Review financial and payment policies – With 8-12% of overall revenue coming from patient balances, hospitals should review, update and promote their payment policies to ensure patients are aware of how to pay their accounts and options to resolve outstanding balances. 
3. Utilize financial counseling efforts – Hospitals with higher patient balances should use financial counseling efforts to help patients identify possible eligibility for financial assistance, Medicaid or other hospital-based assistance/discount programs. Additionally, Financial Counselors can set payment plans with patients early in the process. 
4. Outsource self-pay collections. This might sound like an oxymoron, but hospitals still benefit financially from any recovered payments (even those collected from third-party agencies). With staffing costs at a premium and the lack of technology to push wide-spread outreach to patients, utilizing a first- or third-party agency provides a way for hospitals to focus on the care they provide to patients and other billing matters. They manage the agency and allow their agency partner to drive collections. The cost is lower the earlier the account is outsourced and the work efforts followed early in the process mirror the hospital’s policies.  

Takeaway #3: Consumers can still dispute balances. Mistakes happen. Reports show that 80% of medical bills contain errors, costing the health industry $125 billion or more annually and causing significant delays with reimbursements. While this number is startling, the errors range from coding errors causing delays in billing and reimbursement to demographic errors of the patient’s address or other information. Despite hospitals’ best efforts with quality checks and auditing, errors continue, and hospitals are working diligently to improve this fact. Regardless, whether you are living in a state that bans medical debt reporting or not you as a consumer have a right to dispute your debt and request a review and audit of inaccurate balances. 

The “weight” or value of medical debt on a credit report is not as impactful as you might think. Other types of debt–credit cards and installment loans – are scrutinized far more closely than medical debt when lenders are looking at the whole pie.

In conclusion

Medical debt reporting sits at the intersection of healthcare, finance, and policy — and as this year has proven, that landscape is constantly evolving. While federal protections have stalled, state laws and credit bureau policies still offer relief for consumers. Hospitals continue to rely on credit reporting as a source of financial leverage, but it is up to patients to stay informed, proactive, and empowered to dispute errors and understand their rights.

Photo Credit: freedigitalphotos user Naypon

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