Biden just reduced 'financial distress' for veterans by allowing most of their medical debt to go unreported to credit bureaus

• The VA announced it'll stop reporting most of veterans' medical debt to credit bureaus on Wednesday.
• The new reporting threshold will result in a 99% reduction in reported debt, per the VA.

The Department of Veterans Affairs (VA) just established a new rule to prevent medical debt from weighing down veterans.

On Wednesday, the VA, along with the Consumer Financial Protection Bureau (CFPB), announced new minimum requirements for reporting debt to credit bureaus. Specifically, legislation signed in 2020 allowed the VA Secretary to establish a methodology for reporting debt to credit bureaus, and under Wednesday's new rule, the VA will not report to those bureaus "until all available collection efforts are exhausted and the specified debt becomes classified as not collectible," according to the press release.

"Reporting debt to consumer reporting agencies impacts credit worthiness and negative reports may cause financial distress for Veterans," VA Secretary Denis McDonough said in a statement. "Late remittance or nonpayment can lead to debt collection. However, overpayment of benefits funds is often debt accrued through no fault of the Veteran."

According to the VA, if benefits are overpaid, it can result in a deduction of a veteran's monthly benefit until the debt is repaid. This can be caused by an error in paperwork on the veteran's end, along with processing errors on the agency's end.

"These new changes will result in a 99% reduction in unfavorable debt reported to consumer reporting agencies, thus reducing financial distress for Veterans," McDonough added.

The American Rescue Plan President Joe Biden signed into law in March included medical debt relief for veterans. According to Montana Sen. Jon Tester, chair of the Senate Veteran's Affairs Committee, more than 1.2 million veterans in the US received medical billing relief thanks to a $1 billion package that helped "ensure those who swore an oath to protect our country received the critical support they needed to get through tough times."

While that pandemic aid provided necessary relief to millions of veterans, it didn't eliminate the burden altogether. In 2019, the VA Inspector General found more than 17,000 veterans were left with $53 million in improperly processed payments, leaving many of them with bills the VA should have covered.

And according to RIP Medical Debt — an organization that works to eliminate personal medical debt — 1.3 million uninsured US veterans have medical bills exceeding their disposable incomes, and the VA denies over $3 billion in claims made by veterans, impacting nearly 90,000 veterans annually with fees from emergency visits.

Additionally, 46% of complaints the CFPB received from servicemembers last year were related to debt collection, likely prompting Wednesday's rule change.

Rohit Chopra, director of the CFPB, pointed to a 2014 report from the agency that found medical debt is typically not a good indicator of whether someone will default on future debt, partly due to most of that debt resulting from emergency circumstances — and he said in a statement the new threshold for reporting debt to credit bureaus is a significant step toward eliminating unfair consequences from debt.

"This action by the Department of Veterans Affairs sets an important new standard to halt the financial distress many families face when medical debt unfairly hits their credit report," Chopra said. "I expect that many in the health care industry will seek to follow Secretary McDonough's lead to end the practice of forcing patients to pay up through aggressive credit report coercion."