Alyssa Lane
Medical debt is a widespread issue in the United States, affecting both uninsured and insured adults. Even with health insurance, people can go into serious medical debt due to high deductibles, denied claims, non-formulary prescriptions, and the high cost of healthcare in the US. Medical debt can lead to long-term financial distress, with people cutting spending on essentials, borrowing money, or taking on additional debt. It can also damage credit ratings, making it difficult to qualify for loans or mortgages. With medical debt affecting one in five Americans, consumer assistance programs are in high demand, but these programs often lack the necessary resources. As a result, people may struggle to navigate disputes with insurance providers and end up in debt collections.
| Characteristics | Values |
|---|---|
| Definition of healthcare debt | Any money owed due to medical or dental bills for an individual or someone else's care, including any bills that are past due or that one is unable to pay, any debt owed to a bank, collection agency, lender, credit card, family member or friend for money borrowed to pay medical or dental bills |
| Who does it affect? | Both uninsured and insured adults, adults with lower and modest incomes, people with serious health care needs, people with good health insurance, people with middle incomes, people with low incomes, people living in the South, people living in regions that are majority Black or Hispanic, adults under 65, women, Black and Hispanic adults, adults between the ages of 30 and 49, parents of children under 18 |
| Consequences | Cutting down on food, clothing, and other household items, spending down savings, borrowing money, taking on additional debts, damage to credit rating, difficulty in qualifying for mortgages, auto loans, and other consumer credit, higher interest rates, complications with transactions with new employers, utility companies, insurers, and cell phone companies |
| Consumer assistance programs | Authorized under the ACA but have struggled with limited resources, only federal law that helps privately insured people resolve health plan complaints and claims disputes and file appeals |
| Support for government intervention | Majority of those with and without healthcare debt support government intervention to limit out-of-pocket expenses, 72% of insured and under 65 support this compared to 51% of uninsured |
| Medical debt in collections | $88 billion of outstanding medical bills are currently in collections, affecting one in five Americans |
| Medical debt as a percentage of consumer debt | In 2021, medical debt made up 58% of consumer debt on credit reports |
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What You'll Learn
- Medical debt is a widespread issue in the US, affecting both insured and uninsured people
- People with medical debt often cut spending on essentials, borrow money, or take on additional debt
- High deductibles and cost-sharing can lead to unexpected medical expenses, even for the insured
- Medical debt disproportionately affects people with low incomes, and those in rural and Southern areas
- Medical pricing is often opaque, making it challenging for consumers to make informed decisions
Medical debt is a widespread issue in the US, affecting both insured and uninsured people
Medical debt is a significant issue in the United States, impacting a large portion of the population. Despite a high percentage of Americans having health insurance, medical debt persists as a burden, affecting both insured and uninsured individuals.
The problem of medical debt in the US is widespread, with approximately 20 million people, or nearly one in twelve adults, carrying medical debt. The financial strain of medical bills affects people from all walks of life, regardless of their insurance status. This debt can be attributed to various factors, including unexpected medical expenses, ongoing medical needs, high deductibles, and inadequate insurance coverage.
For those with limited assets, even a relatively small medical expense can be unaffordable. This can lead to a cycle of debt, where individuals take on additional financial obligations to cover their medical costs. According to a KFF poll, people with medical debt often cut spending on essentials like food and clothing and borrow money from friends or family to make ends meet.
The issue of medical debt is not evenly distributed across the country. Adults in rural areas and the South are more likely to report having medical debt. Additionally, there are significant racial disparities, with Black Americans being more likely than other racial groups to owe medical debt. Furthermore, adults with lower incomes, those with disabilities, and those in poor health are at a higher risk of incurring medical debt.
The high cost of medical services and prescription drugs also contributes to the burden of medical debt. Even individuals with health insurance and middle incomes can struggle to manage the financial strain of high out-of-pocket expenses. As a result, medical debt becomes a persistent challenge, impacting individuals' financial stability and overall well-being.
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People with medical debt often cut spending on essentials, borrow money, or take on additional debt
Medical debt is a widespread issue in the United States, affecting both uninsured and insured adults. Despite over 90% of the population having some form of health insurance, medical debt remains a persistent problem. This is due to shortcomings in both health insurance coverage and social safety net programs aimed at replacing income during a time of illness. High deductibles and other forms of cost sharing can also contribute to individuals receiving medical bills that they are unable to pay, despite being insured.
People with medical debt often have to make difficult financial trade-offs, such as cutting spending on essentials like food, clothing, and other household items. They may also have to spend their savings, borrow money from friends or family, or take on additional debt. This can lead to a "downward spiral of ill-health and financial precarity," trapping people in a complicated cycle of poverty. In addition, people with medical debt may delay or skip needed medical care to avoid incurring more debt, which can result in a cycle of debt, distress, and unresolved health issues.
A KFF poll found that 16% of privately insured adults would need to take on credit card debt to meet an unexpected $400 expense, while 7% would borrow money from friends or family. For these individuals, even a medical bill for a few hundred dollars can present major problems. The same poll also suggested that people with unaffordable medical bills are more likely to cut back on basic household expenses, take money out of retirement or college savings, or increase their credit card debt.
Medical debt can happen to anyone in the United States, but it is most pronounced among those already struggling with poor health, financial insecurity, or both. Adults with lower and modest incomes are more likely to have medical debt, and it is a particular struggle for those with significant medical needs, such as people living with cancer. Black Americans are also much more likely than people of other racial or ethnic backgrounds to report owing medical debt.
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High deductibles and cost-sharing can lead to unexpected medical expenses, even for the insured
Medical debt is a widespread issue in the United States, affecting both uninsured and insured adults. Despite over 90% of the population having some form of health insurance, medical debt remains a persistent problem. This is due to high deductibles and other forms of cost-sharing, which can result in unexpected medical expenses even for those with insurance.
Deductibles are the amount an individual must pay for covered health care services before their insurance plan starts to pay. For example, if a plan has a $1,000 deductible, an enrollee must pay the full charge for most medical services until they have spent $1,000. While health insurance plans sold in the marketplaces must pay the full charge for certain preventive care services, most other services are subject to deductibles. High deductibles can lead to financial strain, especially for those with lower incomes or significant medical needs.
Cost-sharing refers to the portion of medical expenses that the insured individual is responsible for paying, even after meeting their deductible. This includes coinsurance and copayments. Coinsurance is a fixed percentage of the allowed amount for a covered item or service that the enrollee must contribute. Copayments are fixed-dollar amounts that enrollees must pay towards the cost of a medical item or service they use and that the health insurance plan covers. Copayments are common for prescription drugs and physician visits. High cost-sharing can result in unexpected out-of-pocket expenses, even for those with insurance.
The combination of high deductibles and cost-sharing can lead to financial strain and unexpected medical expenses for the insured. This is particularly true for individuals with lower incomes, those with significant medical needs, and those who receive care outside of their insurance plan's network. In some cases, individuals may be unable to pay their medical bills, despite having insurance. This can lead to debt, and even bankruptcy, as individuals may need to borrow money or rely on credit cards to cover their medical expenses.
To mitigate the financial burden of medical expenses, some health insurance plans may exempt certain items or services from deductibles, such as prescription drugs or a limited number of physician visits. Additionally, consumer assistance programs have been established in many states to help individuals navigate the complex medical billing and collections system and dispute charges with insurance providers.
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Medical debt disproportionately affects people with low incomes, and those in rural and Southern areas
Medical debt is a widespread issue in the United States, affecting both uninsured and insured adults. While health insurance can protect individuals and households from high medical costs, it does not always prevent medical debt. Even with insurance, people with significant medical needs can still face large amounts of medical debt, which may build up over time. This is particularly true for people with complex health needs that require ongoing care, such as those with disabilities or serious illnesses.
Low-income adults are more likely to have medical debt. Analysis shows that about 1 in 10 adults with incomes below 400% of the federal poverty level (FPL) report having medical debt. In 2021, this was $12,880 for a single person and $26,500 for a family of four. Additionally, adults who were uninsured for part of the year are more likely to report having medical debt (14%) than those who were insured for the full year (8%). People with lower incomes are also more likely to take on credit card debt or borrow money from friends or family to cover unexpected medical expenses.
The burden of medical debt is not distributed equally across the United States. Adults living in rural areas and in the South are more likely to report having medical debt. There are also significant racial disparities, with Black Americans being much more likely than people of other racial or ethnic backgrounds to report medical debt. Women are also more likely to report having medical debt than men, which may be related to childbirth expenses and lower average incomes among women.
Medical debt can have serious consequences for individuals and families. People with medical debt may cut spending on essentials like food and clothing, spend their savings, or take on additional debt. It can also lead to financial distress and impair physical and mental health. In addition, people with medical debt may delay or skip needed medical care to avoid incurring more debt, which can further negatively impact their health.
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Medical pricing is often opaque, making it challenging for consumers to make informed decisions
There are several reasons why medical pricing is often opaque. Firstly, the costs of delivering care are complex and obscured by jargon and accounting intricacies. Secondly, there is an information asymmetry between consumers, providers, and payers, leaving stakeholders without the necessary information to make informed decisions. Thirdly, the association between healthcare cost and quality is inconsistent, and even clinicians often lack information about their organization's prices. This makes it challenging for patients to assess the value and appropriateness of a procedure or service.
The movement for price transparency in healthcare aims to address these issues. Price transparency tools enable patients to access information about the charges they may face and make informed decisions about their healthcare options. However, the effectiveness of these tools is still being evaluated, and there are challenges in presenting pricing information in a clear and meaningful way. Additionally, as most consumers do not pay the full price due to insurance coverage, it can be difficult to determine the prices they will ultimately pay.
To improve price transparency, insurers can play an intermediary role by providing enrollees with information about the benefit structure of their plans and the negotiated prices with providers. Pooling data among private insurers and government programs like Medicare could enhance their ability to support enrollees with meaningful pricing data. While price transparency is essential, it should be paired with patient incentives to select lower-priced providers. Additionally, addressing shortcomings in health insurance coverage and social safety net programs is necessary to reduce the financial burden on individuals with serious healthcare needs.
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Frequently asked questions
Medical debt is any debt owed due to medical or dental bills for an individual's own or someone else's care. This includes any bills that are past due or that the individual is unable to pay, any debt owed to a bank, collection agency, or lender that includes debt used to pay medical bills, and any debt owed to a family member or friend for money borrowed to pay medical bills.
Medical debt can be caused by bad luck, denied claims, non-formulary prescriptions, huge cost discrepancies between facilities, chronic conditions, and the high price of COBRA premiums after being laid off. Additionally, the high cost of healthcare in the United States, combined with weaknesses in the health insurance system, leave many people vulnerable to high out-of-pocket costs and, consequently, medical debt.
Medical debt can lead to substantial damage to an individual's credit rating, making it difficult to qualify for mortgages, loans, and other consumer credit, or resulting in higher interest rates. It can also complicate transactions with new employers, utility companies, insurers, and cell phone companies, who commonly run credit checks on applicants.
Medical debt is a widespread issue in the United States, affecting both uninsured and insured adults. In 2021, medical debt made up 58% of consumer debt on credit reports, and $88 billion of outstanding medical bills are currently in collections, affecting one in five Americans.
