Medical debt is less likely to appear on credit reports

The share of people with medical debt in collections that appears on their credit reports is decreased in the past decade.

Yet unpaid bills due to health care costs continue to burden individuals and families.

In 2013, 19.5% of Americans had medical debt in collections, while 10 years later, in 2023, that share had dropped to 5%, according to new research by the Urban Institute. The change is largely due to efforts of the major credit bureaus in 2022 and 2023 that removed paid medical debt from credit reports and deferred reporting of unpaid debt.

Still, the median medical debt collected during that period has risen, from $842 in 2013 to $1,493 in 2023, the Washington, D.C.-based think tank found.

“Previously, consumers had medical debt on their records, but since then their credit scores have increased significantly,” said Breno Braga, principal research scientist at the Urban Institute.

That could make it easier for debtors to access other types of credit, apply for jobs or rent housing, he said.

Managing Medical Bills: Steps to Control Costs and Minimize Debt

The states where consumers saw the biggest declines in medical debt in collections from 2021 to 2023 were concentrated in the South, according to the Urban Institute. West Virginia saw its share of residents with medical debt in collections increase from 25.8% to 6.7%; South Carolina went from 24.4% to 9.1%; Oklahoma went from 23.7% to 10.1%; Louisiana dropped from 21.3% to 8.1%; and Mississippi dropped from 18.5% to 6.1%.

Colorado had no medical debt in collections in 2023 after it banned credit bureaus from including medical debt on credit reports. Other states with the lowest levels of medical debt in collections in 2023 were Minnesota, at 0.7%; Hawaii, 1.2%; Vermont, 1.2%; and Washington, 1.4%, according to the Urban Institute.

'Many people cannot afford health care'

The Consumer Financial Protection Bureau in June proposed to ban medical bills from credit reports. The independent government agency estimates that the rule would remove up to $49 billion in medical debt from credit reports.

“There’s a growing recognition that most people have health insurance, but many people can’t afford health care,” said Matthew Rae, deputy director of the Health Care Marketplace Program at KFF, a nonprofit that conducts health policy research. “We need to think differently about affordability.”

According to Rae, while removing medical debt from credit reports is helpful, it's not the root of the problem.

Recent KFF research found People with medical debt are more financially vulnerable in other ways than adults who do not have medical debt.

Among adults with medical debt, 72% reported they still had credit card debt, 68% had no emergency fund, and 58% said they were barely getting by financially, according to KFF analysis of 2021 data.

By comparison, only 37% of adults without medical debt reported having credit card debt, while 37% have no savings and 28% say they are barely getting by.

A protester during the 2022 March for Medicare for All in Washington, DC

Probal Rashid | Lightrocket | Getty Images

The KFF study also found that adults with medical debt were more likely to have overdrawn their checking accounts, be approached by a collection agency, use a pawnshop or take out a short-term installment loan.

“We see that people with medical debt end up with all kinds of other debt as well,” Rae said.

However, it's unclear where the problem starts: whether people with credit card debt, for example, are more likely to take on medical debt, or the other way around, he said.

According to Rae, medical debt is “absolutely” a cause of bankruptcy, especially when the high debt is coupled with an inability to work.

About $7 billion in medical debt to be forgiven

Certain states, cities and counties are canceling approximately $7 billion in medical debt through the American Rescue Plan Act, a federal legislation passed in 2021.

The White House estimated in June that the measure would cancel medical debt for up to 3 million Americans.

“Today I am calling on states, cities and hospitals across our country to join us in canceling medical debt,” Vice President Kamala Harris said during a press conference in June.

Vice President Kamala Harris delivers a speech on medical debt forgiveness during an event at the Eisenhower Executive Office Building in Washington, D.C., April 11, 2022.

Stefani Reynolds | AFP | Getty Images

The move is politically popular, according to a recent research from the University of Chicago Harris School of Public Policy and The Associated Press-NORC Center for Public Affairs Research.

More than half of adults (51%) said it is extremely or very important that medical debt be forgiven, compared to just 39% who said the same about student debt. May poll of the groups found.

According to Rae, there are a number of steps debtors who are currently struggling to pay their balances can take to get financial relief.

With network providers, you should “absolutely” try to negotiate and not take the first number, Rae said. There may be less room to lower a bill if you have a high-deductible plan or a high co-pay.

Prescriptions are also an area where patients often face high costs, Rae said. It’s wise to shop around to find the best price a pharmacy or mail-order plan can offer, he said.

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