The $500 credit report change has unintended consequences

Medical debts of less than $500 are now being ignored by the credit reporting agencies, apparently at the behest of the Biden administration. People with debts like this have already seen their credit scores rise as a result. However, lower-income people will now find it harder to get medical care. In the long run, this change probably benefits medical practices more than patients. If so, it's another unintended consequence of intervention in the healthcare market.

What changed with credit reporting?

The big three credit reporting agencies will no longer track medical debts under $500. The Federal government's Consumer Financial Protection Bureau (CFPB) just announced:

The three nationwide consumer reporting companies announced the removal of medical collections under $500 from consumer credit reports on April 11, 2023. We estimate that this reporting change removed at least one medical collection from the credit reports of 22.8 million people and removed all medical collections from the credit reports of approximately 15.6 million people.

While that's good for these people, this change will have other consequences.

What will be the consequences of the change?

Now that medical practices have lost their leverage for collecting small medical debts, they will be more discriminating in who they provide service to. We should expect medical practices to demand payment before service for total bills of $500-$1,000 or less. If you can't pay up front, you will be less likely to receive medical care. This will affect millions of Americans.

The majority of medical encounters cost less than $1,000. That means the majority of medical encounters could require payment up front. Yet 56% of American households can't cover a $1,000 emergency expense with savings. These households need the flexibility of paying later. So if medical practices respond the way we expect, and require payment up front, that puts a majority of American households in a position where they're less able to get medical care.

Who does this change benefit?

Clearly the credit reporting change immediately benefitted anyone who had small medical debts on their credit report. And it will continue to benefit people who incur small medical debts and can't pay them. But again, medical practices will become stricter about who they provide services to, favoring patients that pay up front.

Ultimately, this change probably benefits medical practices more than patients. It gives medical practices a motivation to be stricter about who they provide service to, and a viable reason to refuse service to lower-income patients.

What is the best way to pay up front?

If you must pay up front for medical care, understand you will get the worst prices unless you're part of a network. Unfortunately, it's notoriously expensive to join a health insurance network. If health insurance is not affordable, try Pocketero. It's a non-insurance network for people who pay out of pocket for healthcare. As a Pocketero member, you're guaranteed the best prices. And it's extremely affordable. Try it now.