Will a big change in credit reports mean a big change in employer health care costs?
In March, the three private companies that maintain credit information for more than 200 million people in the United States announced that certain types of medical debt would no longer be used in calculating credit scores.
Under pressure from federal regulators and a growing body of evidence that medical debt is not a good predictor of creditworthiness, Equifax, Experian and TransUnion said they would no longer use paid medical debt after their recovery. This change will eliminate up to 70% of medical debt that appears on credit reports. The decision came into effect on July 1. Starting in 2023, credit reporting companies will also exclude unpaid medical collection debts under $500.
Related: Which States Are Best (And Worst) For Protecting Residents Against Medical Debt?
The move could change the way people use their health care benefits, making it more likely that employees will use their health benefits, even when it could mean having to pay heavy expenses. It’s a change that’s likely to affect those most at risk of medical debt, including young adults and people of color.
As an employer, here’s what you need to know to prepare yourself and your employees for change.
The scale of the medical debt problem
Here’s what we know: With 100 million Americans in medical debt, even a marginal change could have an outsized impact, simply because of the number of people who have medical debt. (Another study estimated that 61% of respondents who obtain insurance through their employer have medical debt.) One expert commented, “Debt is no longer just a bug in our system. It is one of the main products. We have a healthcare system almost perfectly designed to create debt.
Many studies have shown that people who have medical debt or have trouble paying their medical bills are more likely to have health problems. Debt-related stress can lead to mental health problems, which can increase other health-affecting behaviors, including smoking and increased alcohol consumption. Financial instability limits housing choices, which can result in living in neighborhoods that have less access to parks and recreation opportunities or healthy food.
Medical debt can impact the amount of health care people consume. Higher levels of indebtedness (and more specifically medical indebtedness) may be associated with lower levels of health care utilization. For example, a 2013 study found that people with debt, particularly credit card debt and medical debt, were more likely to have given up on medical or dental care in the previous 12 months. A 2011 study in Arizona found that people without insurance who had trouble paying their medical bills or were currently paying off medical debt were more likely to delay medical care than they otherwise would have been.
Here’s what we don’t know: Will the change in credit report rules affect the amount of healthcare people consume? The changes could increase elective care and have a greater impact on people for whom a change in their credit scores would affect their ability to make major purchases like a house or a car. However, it could also be that the change doesn’t make a significant difference to the amount of health care people consume, because it only changes if debt is used to calculate credit scores, rather than affecting medical debts themselves.
Therefore, for now, a wait-and-see approach may be the best course of action.
Communicate what is changing — and what is not changing
While we are still in uncertain times, what can you do as an employer to help your employees navigate the news?
Be clear about what the change means and what you know and don’t know. Whenever changes in the healthcare economy make the news, employees will look to you for help understanding what’s different. It’s important to be clear about what these changes will do: improve the credit scores of most people with medical debt, which will help them with financial services like credit cards, mortgages, loans, cell phone plans and insurance premiums. It’s also important to be clear about what they won’t change: it won’t protect them from unexpected or expensive medical bills that result in debt.
This time can also be a good time to communicate about how employees can save money on healthcare expenses. Ways to save include replacing generic drugs with brand name drugs, investing in preventative care, using health savings accounts or flexible spending accounts (if you offer them), choosing in-network providers and planning ahead for emergency care.
It remains to be seen whether the changes will impact the amount of health care people use. After all, the debts themselves won’t go away, only their effect on credit scores. Nonetheless, health plan administrators should always pay attention to their costs to track any unexpected changes in expenses that may result from changes in the way credit reports are calculated.
Perhaps most importantly, this is a good time for employers to communicate with employees about their plans and highlight ways to access needed care at the lowest cost.