The Biden administration proposed a rule this month that would remove medical debt from credit reports. It’s sure to be popular, if for no other reason than that it’s expected to boost credit scores for the more than 15 million people with such debt by an average of 20 points.

But as with so many of President Joe Biden’s signature health reforms, his latest ploy fails even the most basic cost-benefit analysis.

Implicit in the proposal are two assumptions.

The first is that medical debt is such a serious burden that unilateral executive-branch action can no longer wait. The second is that some form of debt relief — or at least protection from some of the immediate consequences of that debt — is the best way to ease that burden.

From one vantage point, President Biden’s proposal simply reflects public opinion.

More than 8 in 10 people say that medical debt forgiveness is important, according to a poll released this month by the University of Chicago Harris School of Public Policy and The Associated Press/NORC Research Center. Fifty-six percent favor forgiving medical debt for people who are experiencing financial hardship.

The facts reveal that medical debt just isn’t the crisis Biden and the public think it is.

Consider an analysis of medical debt from the Peterson Center on Healthcare and KFF published earlier this year. The authors found that only about 8% of American adults owe some form of medical debt. Roughly 2% have a tab north of $5,000.

That debt is surely burdensome for those who shoulder it. But it’s hard to conclude that medical debt is at crisis levels when just 2% of adults are carrying a balance above $5,000 — especially when the average credit card balance is $1,500 higher than that figure.

Further, it’s not obvious that meddling with medical debt is an effective way to address the problem. Recent state-based efforts to forgive medical debt directly haven’t done much good for patients — and might have even harmed them.

A paper published in April by the National Bureau of Economic Research looked at the effects of medical debt relief programs on 83,401 patients. The authors found “no improvements in financial well-being or mental health from medical debt relief, reduced repayment of medical bills, and, if anything, a perverse worsening of mental health.”

The Biden administration’s proposed rule is thus a solution in search of a problem — and could end up making life harder for the people. 

The main purpose of a credit report, after all, is to quantify a person’s ability and propensity to service debts in a timely manner.

Those evaluations are based on hard data about past debt-repayment behavior. Taking medical debt out of this equation would add new risks to the business of lending money.

The most direct consequence would be to make credit scores a lot less, well, credible. But the ripple would be far-reaching.

Some lenders may become more conservative about extending credit. On the flip side, others might approve loans to borrowers who, under more transparent circumstances, wouldn’t qualify. 

The upshot could be less credit available, particularly at the margin; an uptick in defaults for people who shouldn’t have been extended loans in the first place; and higher interest rates to compensate for all the new uncertainty.

The Biden administration brags that its proposal will lead “to the approval of approximately 22,000 additional mortgages every year.”

That’s not an applause line — it’s an admission of recklessness. These are mortgages that lenders might not approve under the more informed status quo. 

Treating medical debt as some sort of emergency belies the facts. But the suggestion that we “disappear” such debts from credit reports boggles the mind.

It’s a bad answer to a misguided question. As such, it’s a fairly good indicator of what passes for health policy in this administration.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All,” (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes’ Reports — More Here.

© 2024 Newsmax. All rights reserved.