Medical debt and your credit: It's changing and we have an update

Summary

Marketplace Morning Report Summary Episode Title: Medical Debt and Your Credit: It's Changing and We Have an Update
Release Date: June 3, 2025
Host: David Brancaccio
Description: In this episode, Marketplace delves into the evolving landscape of medical debt and its impact on credit scores. The discussion includes recent policy changes, administrative shifts, state-level initiatives, and insights from Allison Sesso, CEO of Undue Medical Debt.

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Introduction to Medical Debt and Credit Scores

David Brancaccio introduces the topic by highlighting the unique nature of medical debt compared to other types of consumer debt. Unlike credit card bills or personal loans, medical debt often arises unexpectedly due to unforeseen health issues, making it a critical area of concern for consumers and policymakers alike.

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Policy Shifts Under the Biden and Trump Administrations

Biden Administration's CFPB Rule

Under President Biden, the Consumer Financial Protection Bureau (CFPB) implemented a significant rule aimed at alleviating the burden of medical debt on individuals' credit scores. This rule ensured that medical debts would no longer adversely affect credit reports, thereby preventing unexpected health issues from undermining one's financial stability.

Allison Sesso on the Biden Rule

Allison Sesso, President and CEO of Undue Medical Debt, explains:

“[00:05:32] Allison Sesso: Medical debt would no longer be on people's credit reports and allow them to not be burdened by having something that happened to them, like getting sick, undermine their ability to access credit."
[05:32]

Sesso emphasizes that this policy was designed to protect approximately 15 million individuals from credit damage due to medical expenses.

Trump Administration's Reversal

With the transition to the Trump administration, there has been a noticeable shift in the CFPB's approach to medical debt:

“[00:06:46] Allison Sesso: They've really backed out of doing any enforcement on this. And unfortunately, they've actually sided with the debt collectors in the court system.”
[06:46]

Sesso highlights that the administration has not only ceased enforcement of the Biden-era rule but has also taken actions that favor debt collectors, effectively nullifying the protections previously established.

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Impact of Congressional Tax and Spending Bills

The episode touches on the broader implications of the congressional tax and spending bills being deliberated by Republican senators:

• Tax Cuts Extension & Increased Defense Spending: The proposed bill seeks to extend the 2017 tax cuts and increase expenditures on defense and border security, cumulatively projected to raise the federal deficit by nearly $4 trillion as per the Congressional Budget Office.

• Medicaid Funding Concerns: Senator Josh Hawley and others express opposition to potential Medicaid cuts, which are crucial for low-income Americans. Sesso points out that such cuts would exacerbate medical debt issues by reducing access to affordable healthcare.

“[00:07:16] Allison Sesso: It does not. It's only going to make medical debt worse, and it's going to make the cost of getting insurance worse because there's a lot of people that are going to be removed from having access to health insurance because of the Medicaid cuts.”
[07:49]

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State-Level Initiatives to Combat Medical Debt

Despite federal rollbacks, several states have taken proactive measures to protect consumers from the adverse effects of medical debt:

• Legislation in Conservative States: Approximately 11 states, including more conservative regions like Virginia and Florida, have enacted laws limiting the impact of medical debts on credit reports.

• Sesso's Insights on State Actions:

“[00:07:27] Allison Sesso: I think there's about 11 states right now that have actually put laws in place, including places that are a little bit more conservative, like Virgin. There actually are places and state actions that are happening. Even places like Florida have put limits on medical debts and what can be put on credit reports.”
[07:27]

These state-level efforts serve as a counterbalance to federal policy changes, offering some relief to consumers in the absence of federal protections.

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The Role of Nonprofits in Addressing Medical Debt

Undue Medical Debt plays a pivotal role in mitigating the financial strain caused by medical expenses:

• Debt Purchasing Initiatives: The organization has recently acquired $30 billion in medical debt, predominantly in states that did not expand Medicaid under the Affordable Care Act (ACA).

“[00:08:18] Allison Sesso: We recently made a huge purchase of medical debt, $30 billion. And we saw that most of that debt was in places that had not expanded the ACA through Medicaid.”
[08:18]

• Future Projections: With the proposed cuts to Medicaid and the potential removal of protective policies, Sesso warns of a likely increase in medical debt and its negative effects on consumers' creditworthiness.

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Conclusion and Future Outlook

The episode concludes with a somber outlook on the trajectory of medical debt in the United States. While federal initiatives have faltered, state-level actions and the efforts of nonprofits like Undue Medical Debt offer avenues for relief. However, the overarching sentiment suggests that without comprehensive federal action to protect consumers from medical debt, the situation is poised to worsen, particularly in states lacking Medicaid expansion.

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Notable Quotes

• Allison Sesso on Medical Debt Protection:

  “Medical debt would no longer be on people's credit reports and allow them to not be burdened by having something that happened to them, like getting sick, undermine their ability to access credit.”
  [05:32]

• On Bipartisan Support:

  “It's very clear that people on the left and the right agree on this point, too, which I think is important to point out.”
  [06:02]

• Regarding Administrative Reversal:

  “They've really backed out of doing any enforcement on this. And unfortunately, they've actually sided with the debt collectors in the court system.”
  [06:46]

• On State-Level Efforts:

  “Even places like Florida have put limits on medical debts and what can be put on credit reports.”
  [07:27]

• Impact of Federal Budget Plans:

  “It's only going to make medical debt worse, and it's going to make the cost of getting insurance worse because there's a lot of people that are going to be removed from having access to health insurance because of the Medicaid cuts.”
  [07:49]

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Final Notes

For listeners interested in the intersection of healthcare and financial stability, this episode of Marketplace Morning Report provides a comprehensive overview of the current challenges and policy shifts influencing medical debt and credit scores. Allison Sesso's insights offer a critical perspective on the effects of administrative changes and the importance of both federal and state-level actions in safeguarding consumers.

Transcript

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Credit it is changing and we have an update now that members of Congress are back from the holiday break, the focus is on Republicans in the Senate trying their hand at the big spending and taxing bill. Marketplace's Nancy Marshall Genzer reports.

[Marketplace Reporter]

The bill would extend the 2017 tax cuts, which are scheduled to expire at the end of this year. It would also boost spending on defense and border security. All that's expensive. The Congressional Budget Office estimates the legislation would increase the federal deficit by almost $4 trillion. That upsets Senate deficit hawks who want to lower the bill's price tag. Ron Johnson, a Wisconsin Republican, is calling for a return to pre pandemic spending levels. Republican Senator Rand Paul of Kentucky wants to drop a provision in the bill that would raise the federal debt ceiling. Other GOP senators like Josh Hawley of Missouri object to potential potential cuts to Medicaid, which provides health care to low income Americans. Hawley wrote an op ed in the New York Times. He said around 21% of Missouri residents benefit from Medicaid or CHIP, which insures low income children. Democrats are not expected to support the legislation, which means Republicans can't afford many defections. The House would have to approve any Senate changes, which would take time. Republicans want the bill on President Trump's desk ready for his signature by July 4th. I'm Nancy Marshall Genser for Marketplace.

[Marketplace Host]

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[Marketplace Host]

Paying back money borrowed to pay for medical care is seen by many as different from paying what you owe for consumer goods. The debt is seldom from discretionary spending. Coming out of the Biden Administration, the Consumer Financial Protection Bureau had finalized a new system to keep medical debt from hurting your credit score. But under new leadership, now the CFPB is pushing the other way. The There's a nonprofit that works to pay off people's medical debt as a charitable endeavor. Allison Sesso is president and CEO of what's called Undue Medical Debt. Welcome.

[Allison Sesso]

Thank you. I'm so happy to be here.

[Marketplace Host]

What had been the newish rule that had come in during the Biden administration. Give me just a sense of it.

[Allison Sesso]

So medical debt would no longer be on people's credit reports and allow them to not be burdened by having something that happened to them, like getting sick, undermine their ability to access credit. It is clear that credit does not indicate whether somebody or not will pay back a loan. And so this would help at least 15 million people.

[Marketplace Host]

But just so we understand, I mean, when people hear someone has debt, the general impulse is to say, well, you gotta pay your debts. Many view medical debt as a different animal, a different category.

[Allison Sesso]

It's very clear that people on the left and the right agree on this point, too, which I think is important to point out. People are no longer buying the moral hazard argument. They very much feel that the system is working against them. The number one predictor of whether or not you end up in medical debt is whether or not you get sick. That is nothing to do with whether or not you're willing to pay or able to pay a loan back.

[Marketplace Host]

All right, so the rule to remove almost $50 billion of medical debt from records gets finalized right at the beginning of the year. But a new administration comes to power. No friend of the Consumer Financial Protection Bureau, and there's not much of the CFPB now left. What's happening? Trump administration is leaning into unwinding this medical debt thing.

[Allison Sesso]

Yeah, they've really backed out of doing any enforcement on this. And unfortunately, they've actually sided with the debt collectors in the court system. And so we don't see this rule actually being implemented. And unfortunately, this is at a time when we've also seen proposals in the big, beautiful bill that's been proposed of cutting Medicaid by $715 billion, which is only going to lead to more medical debt. So the impact, unfortunately, on people's credit is going to likely worsen in the future.

[Marketplace Host]

All right. And at a time that the federal government seems to be moving away from what had been one approach to dealing with this. You do have some states that are dealing with this.

[Allison Sesso]

I think there's about 11 states right now that have actually put laws in place, including places that are a little bit more conservative, like Virgin. There actually are places and state actions that are happening. Even places like Florida have put limits on medical debts and what can be put on credit reports.

[Marketplace Host]

Does the massive taxing and spending plan working its way through Congress address this at all?

[Allison Sesso]

It does not. It's only going to make medical debt worse, and it's going to make the cost of getting insurance worse because there's a lot of people that are going to be removed from having access to health insurance because of the Medicaid cuts. We know that places that didn't expand expand Medicaid under the ACA have higher rates of medical debt. And that's exactly what we're going to see here. And we recently made a huge purchase of medical debt, $30 billion. And we saw that most of that debt was in places that had not expanded the ACA through Medicaid.

[Marketplace Host]

Allison Sesso is CEO of a nonprofit called Undo Medical Debt. Thank you so much.

[Allison Sesso]

Thank you for having me.

[Marketplace Host]

And you remember this Old House? These days it's a radio show and a podcast guidance on how to fix or upgrade things over at your place. And this week they invited me ont this Old House Radio Hour. It's about what I'm learning about rebuilding my house after wildfire. You can listen by signing up free wherever you click for podcasts or. Today, we've included the episode as a bonus in the Marketplace Morning Report podcast feed in Los Angeles, I'm David Brancaccio from APM American Public Media.

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