New California Legislation for Medical Debts
California is taking a powerful stand against an age-old issue plaguing its consumers: medical debt affecting credit scores. Governor Gavin Newsom has signed a bill that prevents unpaid medical bills from affecting Californians’ credit reports. This major move by the Golden State is a part of a bigger wave to shield consumers from unaffordable healthcare costs.
What does this mean for Californians?
In simple terms, this new law prevents both healthcare providers and contracted debt collection agencies from sharing any information about a patient’s medical debt with credit report agencies. So, if someone can’t pay their medical bills, it won’t hurt their credit score anymore. This long-awaited relief will cushion many Californians from life’s unexpected economic slams.
However, there’s a slight catch. The debt from medical credit cards or specialty loans, which can come with whopping interest rates as high as 36%, won’t disappear from credit reports. Unfortunately, some financial industry experts managed to squeeze in these exemptions at the last minute.
Why is this important?
Medical debt is a pesky mosquito that insists on being a part of many Americans’ lives. What makes it even worse is its ability to ruin credit scores. Many experts argue that having medical debt on a credit report is not an accurate measure of a person’s credit risk.
Think about it this way. If you stumbled across a banana peel and ended up in the hospital with a sprained ankle, it was an accident. You didn’t plan on it, you cannot control it, and it most definitely shouldn’t be an indicator of your financial irresponsibility.
Does the bill have any shortcomings?
Despite its bold intentions, the bill is not perfect. It doesn’t provide any protection for people who use medical credit cards or specialty loans to pay their hospital bills. Financial entities argued—successfully—that these bills often include non-medical items, making it hard for them to distinguish between what’s a medical charge and what’s not.
Yet, numerous folks have to resort to using a medical credit card. A 2022 survey found that 15% of adults reported that they’d used one. This glaring loophole could leave these individuals in the lurch, with no support from the new bill.
The Bigger Picture
California isn’t alone in this battle. In the past couple of years, at least eight other states have banned medical bills from appearing on consumer credit reports. What’s more, the Biden administration has expressed interest in implementing similar protections at the federal level. But as of now, there’s no ETA on when that might happen.
No one chooses to get sick, and it’s unjust that one’s credit could be ruined because of it. This is precisely why more and more states are stepping up to protect their residents. They’re setting up their defenses just in case something goes awry at the federal level.
The Impact on Californians
According to the California Health Care Foundation, about 40% of California’s population reports carrying some type of medical debt. This burden bears down more heavily on low-income, Black, and Latino individuals.
The new legislation is expected to alleviate some of this pressure. Starting in January, the protection will extend to credit reports used for employment and tenant screening, in addition to credit agencies servicing credit card companies and mortgage lenders.
Getting sick shouldn’t mean getting hounded by debt collectors or losing the opportunity to secure a job or rent a home due to a tarnished credit report. This new legislation may not be perfect, but it’s a step towards ensuring that Californians, and hopefully all Americans, can focus on healing, not fretting about their financial health.