Orlando Harmon
Medical bankruptcy is a significant issue in the United States, with many people struggling to pay their medical bills despite having health insurance. In fact, it is estimated that people in the US owe at least $220 billion in medical debt, with approximately 14 million people (6% of adults) owing over $1,000. While the Affordable Care Act (ACA) has expanded and upgraded health insurance coverage, it has not reduced the proportion of bankruptcies caused by medical bills. This is due to factors such as increasing medical costs, stagnant incomes, high deductibles, and gaps in coverage. As a result, even insured individuals with middle incomes can find themselves facing bankruptcy due to unexpected medical expenses.
| Characteristics | Values |
|---|---|
| Percentage of bankruptcies in the US caused by medical bills | 66.5% |
| Number of people who file for bankruptcy due to medical bills each year | 550,000 |
| Percentage of US bankruptcies classified as "medical bankruptcies" | 62.1% |
| Number of US adults who declare bankruptcy due to medical bills each year | 1 million |
| Percentage of Americans aged 18-64 who struggle to pay medical bills | 26% |
| Amount of money owed in medical debt by people in the US | $220 billion |
| Number of US adults who owe over $1,000 in medical debt | 14 million |
| Number of US adults who owe over $10,000 in medical debt | 3 million |
| Percentage of people with medical debt who are insured | 80% |
| Percentage of US population with some form of health insurance | Over 90% |
| Percentage of US adults with incomes below 400% of the federal poverty level who have medical debt | 10% |
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What You'll Learn
Medical bankruptcy is rare outside the US
Medical bankruptcy is a rare phenomenon outside the United States. In most countries, medical bankruptcy is almost unheard of, and there are several reasons for this. Firstly, most developed countries have universal or single-payer healthcare systems, where patient costs are either minimal or non-existent. These systems are typically financed by taxes, ensuring that individuals do not incur significant out-of-pocket medical expenses.
In contrast, the United States is unique in its requirement that medical services be rendered before payment, often resulting in unexpected and substantial medical debts. This requirement is absent in most other countries, where procedures are typically paid for prior to treatment, and individuals are less likely to face unexpected medical bills.
Additionally, medical costs in the US tend to be significantly higher than in other countries, further contributing to the risk of medical bankruptcy. High deductibles, narrow networks, and unexpected out-of-network charges can result in patients receiving bills they are unable to pay. This is exacerbated by the fact that many Americans lack adequate health insurance, leaving them vulnerable to the high costs of medical care.
Furthermore, issues such as double billing, exceeding legal limits, and falsified or fake charges can also contribute to the financial burden of medical care in the US. These practices can significantly increase an individual's medical debt, making it difficult for them to stay financially afloat.
While the Affordable Care Act (ACA) aimed to address some of these issues, it has not significantly reduced the proportion of bankruptcies attributed to medical causes. This is partly due to the continuing rise in medical costs and stagnant incomes, as well as the lack of comprehensive coverage and income replacement policies during illness or injury. As a result, medical bankruptcy remains a significant concern for many Americans.
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The chronically poor are most affected by bankruptcy
While the Affordable Care Act (ACA) has expanded health insurance coverage, banning exclusions for pre-existing conditions and imposing a cap on out-of-pocket spending, it has not changed the proportion of bankruptcies with medical causes. This is partly because the chronically poor, who benefited from the ACA's coverage expansion, face challenges in navigating formal bankruptcy proceedings due to reduced access to credit and legal assistance. Additionally, medical costs continue to outpace incomes, leaving many vulnerable to illness-related income loss.
The issue of medical debt is not limited to the uninsured, as 80% of those with medical debt are insured. Gaps in medical coverage, such as high deductibles and narrow networks, can lead to high out-of-pocket expenses. Ambulance transport, for example, is rarely covered by insurance, and patients often have to pay 20% of the cost of care, leaving them with substantial bills.
Furthermore, billing practices can contribute to financial hardship. Double billing, exceeding legal limits, and falsified or fake charges can result in inflated medical debts, causing long-term financial distress and potentially leading to bankruptcy.
Bankruptcy provides a way to restructure or eliminate debt, but it has serious consequences, including severe damage to one's credit score. It is considered a last resort for those deeply in debt and unable to pay their bills. When an individual files for bankruptcy, they may choose between Chapter 7, which involves liquidating assets to pay creditors, and Chapter 13, where debts are repaid over time while retaining assets.
The chronically poor, already struggling financially, may find themselves in a cycle of debt and bankruptcy due to medical expenses and the challenges of navigating the financial and legal system.
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80% of people with medical debt are insured
Medical debt is a persistent problem in the United States, with people owing at least $220 billion in medical debt. Despite over 90% of the population having some form of health insurance, 80% of people with medical debt are insured. This is due to gaps in their medical coverage, including out-of-pocket caps and out-of-network charges. When faced with a medical emergency, people often have no choice but to seek out-of-network care, which is not covered by their health plan. Ambulance transport, for example, is rarely covered by insurance.
In addition, people are often faced with incorrect or inflated bills and double-billing, which can be difficult to resolve. This can cause significant financial harm, especially when companies attempt to collect amounts that exceed federal or state caps. As a result, people with medical debt may have to cut spending on essentials like food and clothing or borrow money from friends and family.
Furthermore, adults with lower and modest incomes are more likely to have medical debt. About 1 in 10 adults with incomes below 400% of the federal poverty level report having medical debt. In 2021, this was an income of $12,880 for a single person and $26,500 for a family of four. Adults living in rural areas and the South are also more likely to report having medical debt.
The burden of medical debt also varies across different racial and ethnic groups. At least half of Black (56%) and Hispanic (50%) adults report having debt due to medical or dental bills, compared to fewer White adults (37%). This is likely due to historical and systemic inequalities that have led to worse health outcomes and less access to quality healthcare for these groups.
While the Affordable Care Act (ACA) has expanded coverage and access to care, it has not significantly reduced the proportion of bankruptcies caused by medical debt. This is because many people still face unpredictable and unaffordable out-of-pocket costs, and few have adequate disability coverage to protect them from illness-related income loss.
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Medical debt is a struggle for middle-income families
Medical debt is a significant issue in the United States, affecting around 100 million Americans. This burden disproportionately impacts those with serious health issues, financial insecurity, or both. Notably, medical debt is a struggle even for middle-income families with health insurance. This struggle is due to high out-of-pocket costs, such as copayments and deductibles, and unpredictable expenses that are not covered by insurance.
While the Affordable Care Act (ACA) has expanded coverage and improved access to healthcare, it has not significantly reduced medical debt. This is because the chronically poor, who were most affected by the ACA, often have difficulty navigating formal bankruptcy proceedings and remain vulnerable to illness-related income loss. Additionally, medical costs continue to rise faster than incomes, and many insured individuals face unexpected out-of-pocket expenses.
High deductibles and narrow networks in health plans can lead to high-cost bills, as patients may seek care from out-of-network providers or preferred providers that are not covered by their insurance. Ambulance transport, for example, is rarely covered by insurance. As a result, individuals may receive bills that are difficult to understand and may include incorrect or inflated charges.
The financial strain of medical debt can force families to make difficult choices, such as cutting back on essential expenses like food and clothing or borrowing money from friends and family. It can also lead to long-term financial distress, including poor credit ratings, which can impact their ability to rent a home or access credit.
To address this issue, policymakers should focus on implementing comprehensive coverage programs and providing sick leave and disability coverage to replace income during illness. These measures could help reduce the financial burden on middle-income families struggling with medical debt.
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Unexpected refusal by insurance companies to pay is the most common cause of medical debt
Despite over 90% of the population having some form of health insurance, medical debt is a persistent problem in the United States. The US health care system has achieved higher rates of coverage over the past decade, but gaps remain. A serious injury or illness can cost thousands of dollars out-of-pocket to meet deductibles and other cost-sharing requirements. For people with a chronic illness, even smaller copays and other cost-sharing expenses can accumulate to unaffordable amounts.
In the United States, people owe at least $220 billion in medical debt. Approximately 14 million people (6% of adults) owe over $1,000 in medical debt and about 3 million people (1% of adults) owe more than $10,000. A 2015 study by the Kaiser Family Foundation found that medical bills caused 1 million US adults to declare bankruptcy every year. The most common cause of medical debt was an unexpected refusal by insurance companies to pay for a medical procedure. This is due to inadequate enrollment in comprehensive health care coverage and high-deductible health plans that push more costs onto patients.
The current administration seems intent on further hollowing out coverage, encouraging a migration to bare-bones, short-term insurance policies that leave enrollees largely unprotected. For example, allowing states to impose Medicaid work requirements that threaten to swell the ranks of the uninsured. This results in individuals being financially vulnerable when seeking medical care. Even those with private health insurance often do not have enough liquid assets to meet deductibles or out-of-pocket maximums.
To address the root of the medical debt problem, the AHA recommends that all individuals be enrolled in comprehensive health care coverage with affordable cost-sharing. This includes removing providers from the collection of cost-sharing and restricting the sale of high-deductible health plans to those with the financial means to afford the associated costs.
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Frequently asked questions
Medical bankruptcies are common in the US, with 62.1% of all bankruptcies falling under this category. A 2015 study found that 1 million US adults declare bankruptcy due to medical bills every year.
Medical bankruptcies occur due to the high cost of medical treatments, with 80% of those in medical debt being insured. Other reasons include high deductibles, unexpected out-of-pocket costs, and gaps in insurance coverage.
Americans owe at least $220 billion in medical debt. Approximately 14 million people (6% of adults) owe over $1,000, and about 3 million people (1%) owe more than $10,000.
Medical debt affects Americans in various ways, leading to financial hardship and distress. Many are forced to cut spending on essentials, borrow money, or take on additional debt. It is a burden even for those with health insurance and middle incomes.
