The most perverse part of medical debt is that it exists at all. There’s probably someone, somewhere, who believes that $120,000 is a fair price for a person to pay to beat leukemia, or that people should choose between going to the doctor or paying rent.
But most people don’t. In fact, 65% of Americans rank medical debt as their number one budget fear. What’s unique is how unbelievably American the whole situation is. In every other place on earth, it’s unheard of for people to be saddled with medical bills. A recent LA Times study found that across parts of Western Europe and Japan, fewer than 1 in 35 households “had medical bills that threatened their financial security.” In the Netherlands, a similar ratio was just 1 in 90.
The good news is that several steps to rein in the medical debt crisis are being pursued. The bad news is that the root of the problem, America’s privatized health care system, is deeply entrenched – and Americans hate it. “Hospital billing and debt collection, all of that is a fact of life for Americans. It’s something that probably is alien to a lot of folks in other countries,” Bernetta Haynes, a staff attorney at the National Consumer Law Center who focuses on medical debt, told More Perfect Union.
In 2022, it’s estimated that 41% of Americans have some level of medical debt. According to the Kaiser Family Foundation, 100 million Americans owe a combined $195 billion dollars for medical care. The same survey found that for one in ten adults that debt is “significant”. Nearly every culture has a mythical sasquatch creature that strikes fear in its populace. We’re the only one that built a system dumb enough that willed the creature into existence.
Debt for health care is different from most consumer debt. No one plans for an appendectomy, or to get pneumonia. Budgeting and personal finance “education” is essentially meaningless when purchasing a service is a matter of life or death. Personally, right now, my wife and I owe just over $5,000 for the birth of our first child. We have good insurance and good jobs. We’re on a payment plan. It’s manageable. But for many Americans, it’s not. 60% of respondents in a Georgetown University survey said they avoided emergency care, delayed preventive care or stopped filling prescriptions because of overdue medical debt.
Compounding this crisis, the mere existence of medical debt has until this year resulted in financial discrimination. Medical debt could lower a person’s credit score, which allowed lenders, businesses and the federal government to charge them higher interest rates and in some cases reject loans outright. Financial institutions viewed medical debt the same way they viewed a person who went into debt buying $3,600 worth of candles. That means that you can end up paying more for housing or a cell phone—because you broke your arm.
Things may have gotten so bad that help is finally on the horizon. This past year, the Biden Administration delivered three key policies that will tangibly help average Americans. The victories don’t kill sasquatch, but they do alleviate some of the more insidious impacts of America’s uniquely perverse system.
Three key wins on medical debt
- In February, the Veterans Administration announced it would forgive $1.5 billion in medical debt within the VA healthcare system. The agency will also stop reporting medical debt to outside credit reporting agencies.
- In April, the Biden administration directed federal agencies to ignore medical debt when evaluating credit worthiness on consumer loans. Essentially, moving forward, if you break your arm and can’t pay, it shouldn’t impact the rate you pay for an SBA loan or FHA mortgage.
- This summer, after months of pressure from the Consumer Financial Protection Bureau (CFPB), the three major credit bureaus announced they would limit the impact of medical debt on a person’s credit report. Previously, medical debt could lower a person’s credit score resulting in higher interest rates. Starting this July, Equifax, Experian and TransUnion will remove most paid medical debt from credit reports and limit unpaid debt’s impact in the future. Additionally, VantageScore, a provider of credit scores to lenders, has announced that it will drop medical debt entirely from its calculations.
- In 2021, Democrats introduced bills that codified the private sector’s actions into law. As of September 2022, neither Senate Bill 214 and HR 733 has passed.
The Consumer Financial Protection Bureau is leading the way
- The Biden administration’s order to federal agencies and the private sector reaction came after extensive research by the CFPB, which found that people who owed medical debt paid their bills at a similar rate as others. People unlucky enough to see their debt head to collections were “less likely to be delinquent than other consumers with the same credit score.”
- The CFPB also uncovered that a significant amount of medical “debt” wasn’t even accurate, but the result of administrative errors within the system. “Our credit reporting system,” CFPB Director Rohit Chopra said in a statement, “is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.”
The elephant in the room is the adoption of a single-payer health care system. It’s something that President Biden has steadfastly refused to consider and is arguably the key in abolishing medical debt, as evidenced by countries around the world who have such systems and also do not have medical bankruptcy crises. As long as America has a private healthcare system, sasquatch will exist.
Barring a change of priorities, there are a few tangible actions that the administration could explore to limit medical debt’s impact:
- Amend the Affordable Care Act to require all hospitals to screen patients for financial assistance programs before they start to collect on a medical bill.
- Codify exempting medical debt from credit reports into law.
- Discharge all medical debt held by hospitals and clinics operated by the federal government. This includes the Veterans Administration, Department of Defense and Department of Health and Human Services.
- Purchase outstanding medical debt outright and discharge it (similar to student loan forgiveness).