Despite the decrease in the share of people with medical debt in collections appearing on their credit reports over the past decade, unpaid balances due to healthcare costs remain a significant burden for many individuals and families. Research conducted by the Urban Institute revealed that in 2013, 19.5% of Americans had medical debt in collections, but by 2023, this figure had dropped to 5%.
The decline in the percentage of individuals with medical debt in collections is largely attributed to the efforts of major credit bureaus in 2022 and 2023. These efforts included the removal of paid medical debts from credit reports and the delay in reporting unpaid debts. While these changes have positively impacted individuals’ credit scores, the median medical debt in collections actually increased during this period, rising from $842 in 2013 to $1,493 in 2023.
State-Level Disparities
The Urban Institute’s research also highlighted significant regional variations in the prevalence of medical debt in collections. States in the South, such as West Virginia, South Carolina, Oklahoma, Louisiana, and Mississippi, saw substantial reductions in the share of residents with medical debt in collections from 2021 to 2023. On the other hand, Colorado achieved a remarkable feat by completely eliminating medical debt in collections in 2023 after implementing a ban on credit bureaus including such debts on credit reports.
Recognizing the detrimental impact of medical debt on individuals’ financial well-being, the Consumer Financial Protection Bureau proposed banning medical bills from credit reports, a move that could potentially remove up to $49 billion in medical debts. Additionally, certain states, cities, and counties have taken steps to cancel billions of dollars in medical debt through federal legislation like the American Rescue Plan Act.
Recent research conducted by the Kaiser Family Foundation (KFF) revealed that individuals carrying medical debt were more likely to exhibit financial vulnerability in various aspects compared to those without such debts. These vulnerabilities included carrying credit card balances, lack of emergency savings, and struggling financially on a day-to-day basis.
Impact on Other Forms of Debt
Adults with medical debt were also found to be more susceptible to other forms of debt, such as overdrawing checking accounts, being contacted by debt collection agencies, or resorting to pawn shops and payday loans. Medical debt often exacerbates existing financial challenges and can lead to a vicious cycle of debt accumulation.
Strategies for Managing Medical Debt
For individuals grappling with medical debt, there are steps that may offer some relief. Negotiating with network providers for lower bills, especially for prescriptions which can incur high costs, and shopping around for the best prices can help alleviate the financial burden of medical expenses.
While progress has been made in reducing the incidence of medical debt in collections on credit reports, the underlying issue of healthcare affordability and its impact on individuals’ financial stability remains a pressing concern. Addressing the root causes of medical debt, implementing effective policies to alleviate financial burdens, and providing support to those struggling with healthcare costs are crucial steps in improving the overall financial well-being of American consumers.