Prepared Remarks of Julie Margetta Morgan at the HealthWatch Wisconsin Medical Debt Symposium

Thank you for inviting me to be here today. At the Consumer Financial Protection Bureau, we study consumer financial products and services, and we keep a watchful eye out for products and services that can put a family's financial stability at risk. For too many Americans, that's medical debt.

Today, I'll give an overview of some of the research and consumer input that has shaped the CFPB's outlook on medical billing, I'll discuss some of the actions the agency has taken to address medical billing and debt issues, and I'll discuss some areas for future consideration.

According to some estimates, as many as 100 million Americans have debt from medical bills. At best, this debt is a nuisance that needs to be managed. At worst, it can destroy families and limit people's ability to work, to get housing, and to seek life-saving medical care.

Research from the Kaiser Family Foundation indicates that, in the past five years, more than half of adults report that they've gone into debt because of medical or dental bills. A quarter of those with healthcare debt owe more than five thousand dollars, and one in five don't expect to ever be able to pay it off. Two-thirds of people with unpaid medical bills report putting off necessary medical care for themselves or a family member because of the cost, and one in seven has been denied access to care.

It's simply wrong for families to be forced into crippling debt just because a child gets sick, they get into a car accident, or a family member is diagnosed with cancer.

The high cost of healthcare and the role of health insurance have been so well-publicized that it can be natural to assume that our nation's medical debt issues are mostly about access to affordable care and to high quality health insurance. And that's certainly a big part of the story. But CFPB's research on medical debt shows that the cost of care and insurance coverage are only part of the problem: Our research shows that many Americans are being saddled with medical bills that they simply do not owe.

Medical bills are often confusing and filled with hard-to-understand codes that make it difficult or impossible for patients to confirm what they owe. And patients do need to confirm what they owe, because in many cases those bills contain outright errors. Among those with medical debt, more than four in ten say they received an inaccurate bill. In some cases, patients are being billed inflated costs, or for care they didn't receive.

It's not just straightforward billing errors that are driving the collection of un-owed medical debt. In many cases, patients are being charged for debt that has been paid, or should have been paid, by someone else. Nearly seven in ten people that have received a medical bill that contained an error say the error involved being asked to pay a bill that should have been covered by insurance. Still more patients report being billed for charges that should have been covered by a hospital's financial assistance policy, often called "charity care."

In some cases, unpaid balances at the provider are altered based on insurance adjustments or financial assistance, but the bills sent to debt collectors don't get adjusted. It's hard enough for families to cover their share of the cost of care. It's deeply troubling to see Americans going deeper into debt over bills they never should have received in the first place.

CFPB's research has also shown how these inaccurate debts can be leveraged by debt collectors as a major moneymaking enterprise. These entities purchase medical debt, sometimes for pennies on the dollar, and then cash out by getting consumers to pay up on those debts. One of the easiest ways to do that is by threatening to park that medical debt on a person's credit report, where it might impede their ability to get a loan, housing, or even a job. Debt collectors know how important a clean credit report can be, and they can use that to coerce payments from consumers. This is particularly problematic where there is doubt as to whether or not the underlying bill is actually owed.

Many debt collectors have no way of ensuring that the bills they are collecting on match the healthcare provider's billing record, so they cannot easily verify the underlying accuracy of a bill. And facing the ticking time bomb of negative credit reporting combined with a "doom loop" between insurance companies and healthcare providers, many consumers may give up and pay a bill just to save their credit report and get some peace of mind.

Just a few years ago, CFPB released research showing that medical bills made up $88 billion of reported debts on credit reports - 58 percent of all third party debt collection tradelines on credit reports. We also found that medical debt collections are less predictive of future payment problems than other debt collections.

Since that report, the three nationwide credit reporting conglomerates - Equifax, Experian, and TransUnion - announced that they would take many of those bills off credit reports, and FICO and Vantage Score, the two major credit scoring companies, have decreased the degree to which medical bills impact a consumer's score. Still, despite these changes, 15 million Americans still have $49 billion in outstanding medical bills in collections appearing in the credit reporting system.

Credit reporting is intended to help lenders accurately assess whether someone is likely to repay a loan. Instead, medical bills are being used as a cudgel to coerce consumers into paying bills they may not even owe, and credit reporting is compounding the unjust punishment people experience for getting sick or injured by turning a health crisis into a financial nightmare.

The CFPB is tasked with protecting consumers and enforcing consumer financial laws, and as such we have taken a number of actions to address medical debt.

Earlier this year, the CFPB proposed a rule that would remove a loophole that allowed lenders to obtain and use medical debt information in connection with credit eligibility determinations. The rule would bring regulations in line with congressional intent, which more than 20 years ago restricted lenders from obtaining or using medical information, including information about debts. The rule would establish guardrails for credit reporting companies, prohibiting them from including medical bills on credit reports sent to lenders, who are banned from considering it.

15 million Americans would benefit from this change. They would see their credit scores rise by an average of 20 points. And with medical debt removed, lenders would see more accurate and predictive information when they pull a consumer's credit report, leading to improved underwriting.

And just a few weeks ago, the CFPB released new guidance to address illegal practices in medical debt collection, touching on medical bills that are false, inflated, or not actually owed. The guidance sends a clear message to debt collectors who are attempting to collect on error-filled or unsubstantiated medical bills. Collectors are not allowed to double dip by collecting on bills already paid, or to seek payments that exceed federal and state limits like the No Surprises Act, or to collect on inflated charges.

The CFPB has also taken a number of actions to enforce federal consumer laws against unscrupulous actors and others engaged in illegal practices related to medical bills. For example, CFPB ordered a medical debt collector to pay redress to consumers and more than a million dollars in penalties because the collector continued to collect on debts without verifying that they were valid after consumers disputed them.

We know that we can't do this alone, however, which is why the CFPB is eager to partner with states. And in many cases, states have really stepped up. For example, states like New York, Colorado and California have banned medical debt from inclusion on credit reports, and several states have moved to restrict the sale of medical debt.

But there is still more work to be done. I want to highlight two areas that are particularly top of mind: medical credit cards and financial assistance policies.

The CFPB is looking closely at the use of medical financial products, including special-purpose medical credit cards. These products promise increased access to care and convenient payment plans, and they can be particularly appealing to healthcare providers. But CFPB's research and market monitoring suggests that in many cases, patients may end up worse off after using these products.

CFPB's analyses show that medical credit cards have less favorable terms than the average credit card and can lure patients in with deferred interest schemes that promise zero or low interest for an introductory period but may prove costly when consumers cannot pay off the balance during the deferred interest period.

Consumers may be making on-time payments all along but end up with a big chunk of interest coming due at the end of the introductory period. And the interest rates on these cards tend to be quite high, with a typical rate of 27 percent. The CFPB has found that over a three-year period, patients paid a billion dollars in deferred interest on medical credit cards.

Moreover, CFPB has heard troubling accounts of patients who were steered into signing up for a medical credit card without their knowledge, under false pretenses, or with inadequate information. Most consumers enroll in medical payment products at the doctor's office or in another medical setting. In these circumstances, medical providers may be improperly steering patients toward a payment product, or enrolling them in a medical payment product when insurance or financial assistance would have covered a chunk of the costs.

Some states are already taking action here. California, for example, has a law that sets limits on deferred interest medical payment products. The Consumer Financial Protection Act's prohibition on unfair, deceptive, or abusive acts or practices applies to issuers of medical credit cards and other medical payment product providers, as do certain other laws the CFPB enforces. We will continue to take a close look at the practices of industry actors and their effect on consumers.

Finally, I want to discuss financial assistance, which I know is a core issue for those of you gathered here today. While the CFPB is focused on unfair and predatory medical debt collection, we also need to look at how these bills accrue in the first place - especially where the consumer does not or should not owe.

To qualify for tax benefits, nonprofit hospitals must offer assistance programs to patients in need. However, CFPB continues to hear from consumers raising questions about whether these programs are working. Sometimes, financial assistance programs have exceedingly narrow eligibility requirements that disqualify patients. Other times, patients face complex application processes or are not even aware of financial assistance programs. In other cases, patients inadvertently sign away their ability to access financial assistance by agreeing to another payment method, like a medical credit card or installment loan.

Non-profit hospitals get preferential tax treatment from the government, in exchange for serving their local community through financial assistance programs. But an analysis of non-profit hospitals found at least $2.7 billion in medical bills that were eligible for financial assistance and were still billed to patients. Other estimates suggest the figure could be much higher. Other analyses have suggested that non-profit hospitals may be giving out less in financial assistance than their for-profit counterparts, or that some hospitals may give out less in financial assistance than they pay their leaders.

When people have a medical emergency, they don't get to shop around for less expensive services or the most generous financial assistance programs. They go to the nearest facility and hope that it will not bankrupt them or upend their families' lives. Federal regulations issued by the Internal Revenue Service for financial assistance policies do not currently specify eligibility or spending requirements, or even set minimum standards. As a result, patients with limited income can end up with vastly different medical bills for receiving the same treatment at non-profit hospitals that receive the same tax benefits.

Assistance for lower income patients shouldn't be a roll of the dice. So what can be done? For one thing, several states have stepped in to raise the standards for financial assistance and provide guardrails. For example, states like Florida and California set minimum income standards for financial assistance, tied to the federal poverty level. This can both raise the standards for who receives financial assistance and clarify for patients and hospitals who is eligible.

Other states have put in place protections to ensure that hospital financial assistance is accessible and equitably distributed. Some states, like Maryland and Colorado, have implemented uniform, plain-language applications that all non-profit hospitals must use. North Carolina has packaged financial incentives for hospitals together with a number of reforms for medical debt, including increasing the income levels for their financial assistance programs and relieving unpaid medical debt for some patients.

Those reforms will surely make an impact on residents of those states. But we need more comprehensive solutions to ensure that financial assistance polices work as intended. The CFPB will continue to work with other federal partners, including the IRS and the Centers for Medicare and Medicaid Services, to better understand and address this problem.

In closing, I just want to reiterate my thanks for inviting me here today to speak and to learn more about the work being done to address medical debt here in Wisconsin. It's great to see that you have a panel of patients on the agenda today to tell their stories. Hearing from patients firsthand really helps us understand how catastrophic medical bills can be on almost every aspect of a person's life, from their physical and mental health to their relationships and their finances. CFPB sees this every day in the complaints we receive and the outreach we do to local communities. We will continue our work with other federal agencies, with state governments, and with healthcare and financial providers to stop unjust medical bills and predatory debt collection.

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