A federal judge this month tossed out a Biden-era rule that would have wiped medical debt from consumers’ credit reports. 

The decision is a victory for borrowers and lenders alike. The now-defunct rule could have ended up hurting the very low-income individuals it was meant to help. 

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The rule made little sense as a matter of economics. Consider a hypothetical offered by former Congressional Budget Office Director Doug Holtz-Eakin when the Consumer Financial Protection Bureau under the Biden administration proposed the rule two years ago. If someone had $1,000 to his name and faced $1,000 in credit card charges and $1,000 in medical debt, he would not magically become more creditworthy by pretending the latter obligation doesn’t exist.

Lenders rely on accurate credit reporting to make informed decisions. Providing lenders with less information won’t necessarily make them more beneficent. They’re likely to become more conservative about who they’ll lend to and raise the cost of borrowing for people who don’t have substantial collateral. Low-income and less wealthy people may find themselves locked out of lending markets, the exact opposite of what the Biden rule intended.

Progressives claim that millions of people are already drowning in medical debt and thus need the assistance that the CFPB rule could give them. But a 2024 brief from the Peterson-KFF Health System Tracker found that 20 million Americans carry medical debt. Just under half of these people owe $2,000 or less. Twenty-nine percent of those 20 million owe $1,000 or less.

A 2022 KFF survey asked people how they’d pay an unexpected $500 medical bill. Thirty percent said they’d pay it right away, 20% would swipe their credit card and pay the balance at the next statement, and 21% would charge the expense and pay it off over time.

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These data would seem to indicate that medical debt is not the problem that many progressives make it out to be.

Ignoring medical debt doesn’t make it disappear. Boosting competition among providers and insurers would do more to make healthcare affordable and reduce the salience of medical debt.

Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It. Follow her on X @sallypipes.