DENVER — Coloradans who have accumulated medical debt should check their credit reports as a first-in-the-nation law went into effect in August that with few exemptions, essentially removes medical debt from being reported in consumer credit reports.
House Bill 23-1126 passed the Colorado legislature and was signed by Governor Polis intending to change how medical debt is viewed on credit reports by the three major reporting agencies.
“Prior to this law taking effect this month, when you had medical debt, that xxx typically showed up on your credit report and impacted your credit score.
“That's a problem for Coloradans with medical debt because credit reports and credit scores are used in a lot of really important situations,” said Julia Char Gilbert, Connelly Policy Advocate Colorado Center on Law and Policy. “So when you go ahead and apply for a new apartment or you try to take out your first credit card, or you're looking to take out a mortgage to buy a home, or a loan to start your small business, this is all situations where people who are making really important decisions about your life are evaluating you and your creditworthiness based on your credit report and or your credit score.”
It’s important to note that the medical debt isn’t forgiven.
“You still owe this medical debt. You incurred the debt, and it's your debt. However, it should not be like a noose around your neck everywhere you go,” said Rep. Naquetta Ricks, D-Aurora before the bill’s passage.
An estimated 700,000 Coloradans have been saddled with medical debt owing more than $1.3 billion.
“So under the new law, the onus is really on the companies that create credit reports, also known as the credit bureaus, it's their responsibility to ensure that your medical debt information isn't showing up on your credit report anymore,” said Gilbert. “So, theoretically the responsibility is in their court and the consumer doesn't need to do anything.”
That said, Gilbert urged Coloradans to request their credit reports from the big three national reporting agencies to check for errors or issues. Once a year, consumers have a right to request one free copy of their Equifax, Experian, and TransUnion credit reports.
“You can go to annualcreditreport.com to get copies of your credit reports and review them to see if your medical information is still on there,” said Gilbert. “ If you do see an error, like if your medical data is still showing up even though this new law prohibits that you have the right to take action and file what's called a dispute.”
The Colorado Hospital Association, Mental Health Colorado and Healthier Colorado were among the major health organizations that supported the new law, but before its passage, critics argued that while the medical debt doesn’t mean someone is financially irresponsible, it could serve as an important indicator to a potential lender of a person's ability to pay their bills.
Gilbert offered another perspective.
"Medical debt is really not a very good predictor of your credit worthiness, your ability to pay back a loan, it's a much better predictor of whether you got sick or someone in your family got sick or had an injury, and you ended up with a medical bill that was not affordable for your household," she said. "We know for example, that folks who are disproportionately burdened by the inadequacies and inequities in our healthcare system and in our economic system are more likely to have medical debt and they're more likely to have larger medical debts."
Colorado's new medical debt reporting law goes into effect as the major credit reporting agencies in April 2023 began removing medical debt at $500 or less from credit reports. Equifax said the change would remove nearly 70 percent of collection accounts from consumer credit reports.