Medical Debt in the I.O.U.SA

Medicare for All

The United States is unique among industrialized nations. Lucky for us, we can accumulate medical debt! Most industrialized and some developing nations have national healthcare programs that guarantee care to their residents. But we in the richest nation in the world have the freedom to get insurance through the free market, and go into debt when it doesn’t cover the care we need! USA USA USA!

According to the Kaiser Family Foundation (KFF), while over 90% of Americans have health insurance, we owe at least $220 billion in medical debt. Approximately 14 million people owe more than $1,000, and about 3 million owe more than $10,000. When the debt is cast more widely to those who have put medical bills on their credit cards or borrowed money to pay them, KFF found that 41% of adults have healthcare debt.

According to the US Census Bureau in 2021, Black and Latinx households are disproportionately affected by medical debt.

Today we’ll dive into the topic of medical debt: who has it, who profits off it, and what can we do about it?

https://www.youtube.com/watch?v=dZPd1kFbEuE

Show Notes

What causes medical debt?

Believe it or not, our freewheeling use of the healthcare system is not to blame. In the US medical debt is caused by the high prices charged by hospitals, pharmaceutical companies, and insurance companies. While most industrialized nations have some means of controlling prices, in the United States the healthcare industry sets prices more or less however they want. As a result, according to a nationwide poll in 2022, over a five year period more than half of US adults report going into debt because of medical bills.

Debt is preventing Americans from saving for retirement, paying for college, or buying a home.

The 2022 poll found that 1 in 7 people reported being denied care due to unpaid bills. Two-thirds of those polled reported putting off necessary care due to cost.

This is all despite the Affordable Care Act expanding insurance coverage to more Americans than ever before. Insurance companies increasingly shift costs onto patients, with higher deductibles and more claim denials. According to the 2022 KFF poll, 61% of insured Americans had medical debt in the previous five years.

What makes medical debt so dangerous?

We know health systems are denying care to patients who have unpaid bills. And we know people put off care so they don’t incur more debt. Those barriers to care make us sicker, and they disproportionately impact people with higher rates of chronic conditions. The Commonwealth Fund found that 54% of people with employer coverage who skipped or delayed care reported getting sicker; 61% in individual market plans and 63% with Medicare reported the same. A 2024 study published in the Journal of American Medical Association found that medical debt is associated with higher mortality and premature death.

What happens when you can’t pay your medical debt?

When you think about all the real people on the end of those medical debts, that makes it all the harder to swallow a fact that gets relatively little attention in the broader conversation. Medical debt collection is a for-profit business. In many cases, non-profit hospitals sell debts to for-profit medical debt collections agencies. Some health systems even operate their own for-profit debt collection arms. Think of it: They set the prices for their services as high as they want, and on the other end of the equation, they’re making money off debt collection.

Dr. Luke Messac of Brigham and Women’s Hospital testified at a July hearing of the Senate Health, Education, Labor and Pensions Committee that he learned that his and many other hospitals as well as collection agencies report sick, vulnerable patients to credit bureaus, garnish wages, seize bank accounts, and seek warrants for their arrest. And again, we have to highlight the evil practice of hospital systems that restrict patients from getting needed follow-up treatment until their debt is paid.

These are not just a few bad apples. Aggressive debt collection tactics are widespread: a KHN investigation in 2022 examined billing and financial aid at 528 hospitals across the country and found:

• more than ⅔ sue patients or take actions like garnishing wages.
• About ⅔ report patients to credit rating agencies, which negatively affects their credit scores and hurts their ability to get housing or jobs.
• A quarter of hospitals sell patient debts to debt collectors
• About ⅕ deny care to people with outstanding debt

Medical debt doesn’t always go on your credit rating: Unpaid medical debt that is sent to collections can be reported to credit bureaus after one year, then remains on your credit report for seven years. As of a rule that went into affect April 11, 2023, medical debt can only impact your credit rating if it’s over $500. CPFD’s new rule would prevent debt of any amount from appearing.

WATCH: If you need a moment of levity, a few years ago, John Oliver did a segment about the “grimy business” of debt collection.

How do we fix this?

Until we have a Medicare for All system that takes the profit motive out of healthcare, controls prices for care, and gives patients access to treatment with no cost at the point of delivery, we will continue looking for new and creative ways to help people survive in our messed up healthcare system. Fortunately, many Americans and even some of our elected officials are good at coming up with creative ways to help each other in times of crisis. Some solutions would be relatively simple for Federal, state or even local governments to enact:

Charity Care Eligibility: We have to hold non-profit, tax-exempt hospitals responsible for providing what’s known as “charity care.” In exchange for their tax-exempt status, non-profit hospitals are supposed to provide care and help patients determine if they’re eligible for free or reduced cost care or Medicaid. One problem is that charity care standards are vague; as a result, KFF found that charity care costs represented 1.4% or less of operating expenses at half of hospitals in 2020. Another barrier to access is that hospitals make applying for this kind of assistance overly complicated, something a patient in a health crisis rarely has the capacity to do. One solution is for the IRS to use existing authority to allow hospitals to verify patient income in real time, so they can access financial assistance or Medicaid. Hospitals could use software that’s widely available to “cut off medical debt at the source” and ensure that eligible patients receive assistance when they walk in the door for care. But they aren’t currently required to do this by federal law.

Buying and Forgiving Medical Debt: We’ve all contributed to GoFundMes to help people with medical bills by now. Another way to crowdfund medical debt: for ten years, an organization called Undue Medical Debt (formerly known as RIP Medical Debt) has offered Americans an easy way to buy up and forgive other people’s medical debt for pennies on the dollar (without lining the pockets of a corporate crowdfunding platform). Any individual can buy up medical debt for pennies on the dollar and go to sleep at night knowing they helped ease the burden on a fellow American.

Taking that idea to a new level, some cities and counties like St. Paul, Minnesota and Wayne County, Michigan have used federal ARPA dollars to buy up the medical debt of some of their residents. St Paul, MN with a population of just over 300,000 erased $100 million in medical debt for 43,000 residents. We know that when debt is erased, especially for lower-income families, that leaves more money for rent, groceries, and the other things needed to lift people out of poverty. While this doesn’t address the root cause of medical debt,

Medical Debt Cancellation Act of 2024: In May of this year, Representatives Ro Khanna of California and Rashida Tlaib of Michigan, and Senators Bernie Sanders of Vermont and Jeff Merkley of Oregon introduced legislation to eliminate $220 billion in debt, wipe it from credit reports, and limit the accrual of future debt. The bill create a grant program within the Department of Health and Human Services to to cancel medical debt, prioritizing vulnerable populations and debt owed to safety net hospitals.

Consumer Financial Protection Bureau rulemaking to remove medical debt from credit reports: A proposed rule change by Biden Administration/Consumer Financial Protection Bureau announced on 6/11/24 would prevent almost any medical debt from appearing on credit reports.

State Efforts: according to a 2023 Commonwealth Fund analysis, 20 states have financial assistance standards, and 27 have community benefit standards. The strength of these standards vary, as does eligibility to receive financial assistance, but several states have robust protections:

• 8 states have laws limiting or prohibiting interest that can be charged on medical debt. However, the laws don’t extend to third party debt collectors, who hospitals often engage.
• 3 states limit hospital or debt collectors’ ability to sue patients for debt. Illinois prohibits lawsuits against uninsured patients who demonstrate inability to pay.
• 11 states prohibit or set limits on liens or foreclosures for medical debt. California and New Mexico prohibit liens and foreclosures for low-income populations. New York and Maryland fully prohibit them.
• 21 states have wage garnishment protections that exceed federal standards. California prohibits all wage garnishment for low-income populations, and New York fully prohibits wage garnishment to recover medical debt.
• In July we learned about North Carolina’s new plan to give hospitals additional Medicaid dollars if they forgive the debt of around 2 million residents. CMS approved the plan.
• In June of 2024 Minnesota passed the Debt Fairness Act, pushed by Attorney General Keith Ellison (an M4A champ who was our chief author in the House during his terms in Congress) that will
  • Ban providers from withholding necessary care due to unpaid debt
  • Eliminate the automatic transfer of medical debt to a patient’s spouse
  • Establish protections from unethical medical debt collection
  • Require providers to publish their debt collection practices
  • Create a new process to help people dispute coding and billing errors

The Republican plan: Surely Donald Trump and JD Vance have a plan to address this crisis. Just kidding. Literally nothing comes up if you Google their names plus medical debt.

Conclusion

Medical debt is a shameful part of our broken healthcare system. Relieving medical debt isn’t the solution. It is the right thing to do to relieve millions of Americans from immediate stress and hardship so they can focus on their health. But the real solution is a national health plan with price controls for providers based on what it costs to provide care, and low-to-no cost at the point of care, so patients can get care when they need it, without worrying about the debts afterward. With the patchwork of limited protections and relief on top of a system that allows unfettered profiteering by the healthcare industry, medical debt will continue to be a problem for Americans until we address the PRICE of care. Until then, we’ll keep you posted on mutual aid efforts that help Americans survive our healthcare hellscape.

Do you have a story about the way your community is coming together to support people who need healthcare? Please share it by emailing us at [e-mail].

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