NJ residents' credit scores soon won't be dinged for most kinds of medical debt

New Jersey Gov. Phil Murphy will sign a medical debt relief bill that the state Legislature recently passed and that includes some of the protections he has called for over the past two years, his staff confirmed.

The bill prohibits credit rating agencies from lowering people’s scores for most forms of medical debt. That would help protect debt holders from the financial ruin that can come with a plummeting credit score.

“Right now in New Jersey, more than 1 in 10 of our neighbors has medical debt in collections," Murphy said in his State of the State address in January. "That number is even higher in communities of color. And we know that when someone is saddled with medical debt, they are less likely to seek medical care because they worry about being harassed by predatory debt collectors who will garnish their wages or even seize their property.”

The governor also called for medical debt relief in his 2023 State of the State address.

Brittany Holom-Trundy, senior policy analyst at the progressive think tank New Jersey Policy Perspective, said during a hearing on the bill that it would deliver benefits even though it would not address the root issue of high health care costs or fully eliminate medical debt.

"[T]his will at least provide families with the knowledge that medical debt will not pervade their lives and create obstacles to other basic necessities," she said. Holom-Trundy called on lawmakers to add a legal remedy for consumers in case the legislation's rules are not followed, but that request did not make it into the final version.

The bill, which the state Legislature passed in late June, includes a loophole allowing medical debt placed on credit cards to be reported to credit rating agencies.

But the legislation also include a 3% interest rate cap on all medical debt, a prohibition on garnishing low- and moderate-income workers' wages over medical debt, and more transparency for debt payment plans.

"There are significant benefits in this act, and we are committed to working towards ensuring consumers have all the financial protection from medical debt they need and to ensure the public is made aware of their rights under this law," said Laura Waddell, health care program director at advocacy group New Jersey Citizen Action, in a statement.

Murphy had already committed $10 million in last year’s state budget for medical debt relief. New Jersey is working with a nonprofit, Undue Medical Debt , previously known as RIP Medical Debt, to negotiate and pay down debt held by hospitals and doctors in the state. Anyone who earns up to $60,200 annually or owes more than 5% of their income is eligible for the program.

The bill is named after Louisa Carman, a staff member in Murphy's Health Care Affordability Office who died in a car crash just weeks before he gave his 2024 State of the State address.