Connecticut Faces Setback As Federal Rule Could Undo Medical Debt Protections

Having unpaid medical debt reflected on annual credit reports can often prevent people from qualifying for mortgages, credit cards, or auto loans, while also increasing their risk of bankruptcy.

About one in five U.S. residents has at least one medical debt collection listed on their credit reports, disproportionately affecting marginalized groups, people of color, and low-income communities.

Efforts from both federal and state lawmakers led to several laws aimed at better protecting consumers by prohibiting the reporting of medical debt on credit scores, including in Connecticut. Yet, as the cost of healthcare continues to rise, the Trump administration is looking to undo those state protections with a reinterpretation of a finalized rule made by former President Joe Biden in late January.

Earlier this week, the federal Consumer Financial Protection Bureau stated that national reporting standards and requirements were established with the Fair Credit Reporting Act, a 1970s law regulating how consumer reporting agencies collect, share, and use personal data. Thus, the bureau argues, it preempts any state law or regulation.

“Medical debt burdens people at their most vulnerable, often following them for decades and limiting their ability to secure housing, transportation, and financial stability. In Connecticut, Governor Lamont was proud to relieve thousands of residents of medical debt and ensure it no longer appeared on credit reports,” said Rob Blanchard, director of communications for the governor’s office. “The Trump administration’s decision to override these state protections reverses that progress and undermines our ongoing efforts to make Connecticut more affordable for all.”

Although medical debt is one of the most common types of collections reported, it differs from other forms of debt, said Tiffany Donelson, president and CEO of the Connecticut Health Foundation. She explained that it often stems from expenses related to emergencies or pregnancy care, impacting people of color at higher rates due to gaps in insurance coverage.

Donelson added that a study by the federal Consumer Financial Protection Bureau found that reporting medical debt on credit scores is not a reliable indicator of future payment problems.

As a result, in January, the Biden Administration finalized a new national rule prohibiting credit rating agencies from including medical debt on most consumer credit reports, with the policy set to take effect in March 2025. The goal was to further reduce the number of people with medical debt in their reports after three credit bureaus in 2023 announced they’d no longer track that type of debt if it were below $500.

The decision also paved the way for state lawmakers to enact their own measures addressing medical debt. So far, 14 states, including Connecticut, have passed related legislation.

In Connecticut, an estimated 280,000 people – about 10% of the state population– struggle to afford their health care and are in medical debt in a given year. The new state law prevents health care providers and hospitals in the state from reporting medical debt to credit rating agencies.

Not only did state lawmakers create consumer protections, but they also allocated approximately $6.5 million in federal funds from the American Rescue Plan Act to cancel around $650 million in medical debt for more than 250,000 residents.

Although not unique to the Nutmeg state, Connecticut was one of the first states to announce a systemic, statewide approach to eliminate medical debt back in 2021. So far, more than 120,000 Connecticut residents have had some or all of their medical debt cancelled since 2024.

Both measures represent important steps toward improving residents’ overall well-being, said Amy Porter, acting commissioner of the state Office of Health Strategy.

“When medical debt erodes a family’s ability to put a roof over their head or access safe, reliable transportation for work, school or caregiving, the impacts on health and health-related social needs are magnified,” said Porter in an email statement to CT Insider.

It’s not the first time the Trump administration has challenged the medical debt reporting rule. A Trump-appointed federal judge in Texas blocked the finalized rule in July, stating that it exceeded the Consumer Bureau’s authority.

The change is also coming at a time when medical debt is likely to increase, Donelson said, as new Medicaid regulations take effect. More than 168,000 Connecticut residents, most of them low-income, could lose their health insurance over the next ten years as a result of Trump’s reconciliation bill, according to data from CT DataHaven.

“We should be looking for ways to support families in rebuilding their health and financial well-being following a medical challenge or as they are building their families,” said Donelson in an email statement to CT Insider. “Our state leaders took a positive step in limiting the harm of medical debt, and this effort to undo that would take us backward.”

This article originally published at Connecticut faces setback as federal rule could undo medical debt protections.