Medical debt is a pervasive social problem increasingly featured in the headlines—more than 100 million people in the U.S. have faced healthcare debt in the last five years, with more than $220 billion owed nationwide.1 The reasons for this are many, including an ongoing affordability crisis, unchecked health care costs, and an often fragmented and confusing health care system that can leave patients with more questions than answers. While there are some federal standards, medical debt protections vary greatly from state to state; in some, creditors can place a lien on a patient’s home, while in others patients have much more robust protections.2 With 1 in 4 people in the U.S. holding an unpaid bill they can’t afford to pay, the question then becomes how does this happen, and how can we address it?
In order to tackle medical debt, we have to understand how it happens. While the government has taken steps to make medical bills more predictable, health care needs can still take people by surprise. Indeed, according to the Kaiser Family Foundation (KFF) the vast majority of bills people struggle to pay (66%) stem from a one-time or short-term event like a car accident or hospital stay. That being said, chronic illness and disability are also major drivers of medical debt; according to the Robert Wood Johnson Foundation (RWJF), people with disabilities are more than twice as likely as those without to have past-due medical debt.3 While the number of uninsured people in America continues to decrease, out-of-pocket costs have grown, making it more difficult to avoid medical debt even with insurance coverage. When combined with the news nearly 40% of people in America lack the money to cover a $400 emergency expense, it is no surprise that medical debt is such a significant struggle.
Fast Facts on Medical Debt
- 7 in 10 adults say they have received medical bills they can’t afford to pay—with nearly half saying they’ve delayed medical care as a result.
- Nearly 75% of adults with past-due medical debt owe money to hospitals—these bills are also typically much higher than past-due bills owed to non-hospital providers.4
- 6 in 10 adults are worried about going into medical debt when they use the health system.
- 63% of people say they are making sacrifices to afford health care—including delaying going to the dentist, skipping doctor appointments, and changing the foods they eat.
How a Bill Becomes a Debt
The figure below helps illustrate how a bill becomes a debt. In our example, Sam breaks their arm while on a bike ride and goes to the hospital to get the bone set. They have insurance, but their cost-sharing portion is large and they can’t pay the bill. At this point Sam has a few options:
- They can ask the hospital for a copy of their financial assistance policy and apply for aid;
- They can request an itemized list of charges and make sure the bill is accurate (the Consumer Finance Protection Bureau notes complaints received often cite billing errors);
- If they feel the procedure should have been covered, they can appeal with their insurance company. According to the Commonwealth Fund, nearly 20% of people experienced claim denials in the past year; or
- They can try and negotiate a lower bill or payment plan with the hospital.
None of these steps are mutually exclusive—if they have the bandwidth, Sam can attempt all four. However, contesting and understanding medical bills while also dealing with the medical problem itself can be a tremendous lift. Many people don’t realize they can contest bills or ask for financial assistance, and for those that do the administrative burden can sometimes be too much. In this scenario Sam applies for financial assistance, but they are not found eligible; they do not have the money to make payments, so they place the bill in a drawer and try to forget about it.
FIGURE 1
The path for someone without insurance is similar. If Sam does not have insurance, the hospital should screen them for financial assistance eligibility as well as help them apply for coverage programs like Medicaid, Medicare, or other local programs. Non-profit and public hospitals are required to provide some degree of charity care but are free to set their own eligibility thresholds—this means Sam may qualify for financial assistance at one hospital but not another down the street. That being said, when eligible patients are able to access financial assistance before being overwhelmed by bills, everyone benefits. Providers do not have to worry about pursuing (likely uncollectable) debt and patients are able to heal without worry.
Whether insured or uninsured, in an ideal scenario the hospital would presumptively screen Sam for eligibility for financial assistance. Presumptive eligibility (PE) saves patients from having to balance applying for financial assistance while also navigating a health issue and saves providers from spending hours processing forms—freeing up everyone to engage in the business of healing. Beneficiaries often share with us that they were never told about financial assistance programs, or that they heard about it secondhand and had to provide a tremendous amount of paperwork. Revenue cycle professionals in turn share frustrations that financial assistance information is provided at multiple points but often goes unnoticed by patients. PE eliminates the risk of assistance information not being shared or going unnoticed, eliminates administrative burden, and protects patients from the debt collection cycle.
FIGURE 2
Affordability Crisis: Insurance alone is not enough.
While insurance coverage is an important factor in protecting against high health care costs, people with insurance are increasingly struggling with medical debt. The cost of coverage places strain on budgets before a person ever sees a doctor:
- The average annual premium for employer-sponsored health insurance for a single person grew from $7,911 in 2022 to $8,435 in 2023;
- Employee cost-sharing has grown, with an average single coverage deductible of $1,735—a 53% increase over the last ten years;
- The average deductible for a marketplace plan is $3,057;
- High-deductible health plans (HDHPs) continue to grow in popularity. While they offer the advantage of much lower premiums, consumers may not fully understand they come with the trade-off of extremely high out-of-pocket costs until deductibles are met.
Unpaid and Past Due
Hospitals and other providers typically expect payment within 90-180 days of billing a patient. In general, when a patient doesn’t pay a medical bill, the provider has a few options:
- They can classify Sam’s bill as “bad debt”;5
- They can continue to try and collect through their billing department or a contracted third party; or
- They can sell the debt to a debt buyer, who then tries to collect payment.
The path taken depends on the decisions made by the provider or hospital and is not the same for every person. Collecting medical debt can be a long, circuitous process that is challenging for everyone involved.
Debt in Collections
After many attempts to collect, the hospital eventually sells Sam’s debt to a debt buyer. These companies typically buy debt from hospitals for pennies on the dollar and can use aggressive collection tactics—including charging penalties, interest, sending letters, and making regular phone calls. Note that at this point the debt is fully owned by the buyer, meaning these “extraordinary collection actions” are driven by the buyer and not the hospital. Instead of selling debt to collections agencies, some hospitals and providers choose instead to contract with a collection agency to pursue payment. In cases like this, vendors will usually get to keep a percentage of the debt they successfully collect—so while the debt has technically not been sold, there is still incentive for the vendor to be aggressive in their collection efforts. If Sam remains unable to pay their bill, the debt collector may file a civil lawsuit, which in turn could lead to paycheck garnishment or seizure of personal property.
Know your rights. There are laws and regulations governing debt collection, including how often they can contact you!
Credit Reports
If the medical debt is over $500, the debt collector or provider practice can report it to a credit bureau. While not all these debts are reported, it is still helpful to understand what happens when they are—at this point Sam has 180 days to resolve the bill before it is included on their credit history. It will appear on their credit report as an “account in collections” and can have a significant impact on their credit score, even though medical debt is not a good indicator of a person’s propensity to pay other future bills. The credit reporting piece is important, as lower credit scores can make it difficult for people to find a job, qualify for housing, or access “good” debt (obtain more credit).6 While medical debt credit reporting is currently handled this way, there are multiple ongoing efforts at both the state and federal level to remove medical debt from credit reports altogether.
There is a growing understanding that unpaid medical debt is not a good predictor of someone’s will or ability to pay—indeed, medical debt should be understood as a debt of necessity rather than indulgence, meaning the patient didn’t choose to incur their debt as a “luxury.” People need medical care, and the structure of our health care system means they often must incur debt to access it. As of May 2023, the “Big Three” credit reporting companies—Equifax, Experian, and TransUnion—voluntarily agreed to remove all paid medical debts, medical debts less than a year old, and medical debt under $500 from credit reports. The Consumer Finance Protection Bureau (CFPB) has also kicked off rulemaking to remove all medical bills from credit reporting, which would have a tremendous impact on the lives of the nearly 43 million people with unpaid medical bills on their credit reports.
This is just the beginning
Removing medical debt from credit reports is an incredible first step, but the harms of medical debt go beyond credit scores. A lot of medical debt remains hidden since people put it on their credit cards, transforming it into “regular” financial debt. Medical debt can also have a significant impact on mental health and wellbeing—the stress of figuring out how to pay bills and access care does not disappear with the credit reports. We must continue to address the financial, emotional, and physical impacts of medical debt.
So, Who Has Medical Debt? And Why?
So, who has medical debt? It is difficult to answer the question precisely since there is no centralized reporting system for medical debt, but we can infer from credit reports and other sources that the answer is many of us. From the uninsured to the underinsured, medical debt is an extremely common problem. As mentioned above, more than 100 million people in the U.S. (roughly 1 in 3) struggle with the weight of medical debt. That being said, when you view a map of medical debt in collections it is clear that it is concentrated more in certain geographic areas and among certain demographic groups—specifically, it is more prevalent in the South, among Medicaid non-expansion states, and among communities of color, women, and people with disabilities. Perhaps most jarring, according to KFF 44% of people with health insurance also have medical debt. This speaks to problems far beyond a patient “not wanting” or “trying not to” pay their bills— people want (and try) to pay their bills, but health care is expensive and simply increasing insurance coverage is not enough to address the root cause. Indeed, the proliferation of things like high deductible health plans (HDHPs), the ever-increasing portion of cost-sharing shifted to the patient, shrinking provider networks, and inappropriately denied claims only serve to contribute to more medical debt.
The causes of medical debt are both clear and complex. Both patients and providers must contend with serpentine medical billing procedures that vary from insurer to insurer, health care costs that remain difficult to predict, and a system that demands the patient become an expert in a way we don’t see in other arenas—all while trying to heal from an accident or address a chronic illness. Our recipients have shared stories of how medical debt impacts them and how difficult it can be to escape the cycle of medical debt (see Figure 2); their insights help inform our policy priorities as we work to help create a truly person-centered health care system that allows people to heal without fear of financial ruin.
What can I do if I have a bill I can’t pay?
Dealing with a large medical bill can be overwhelming, but there is help! Our Resources page has short summaries on how to understand and contest a bill, commonly used terms, and places to go to learn about efforts to address medical debt in your state. In general:
- Review the billing statement you received and make sure it is accurate. If you have questions, call the provider’s office or the hospital.
- Most billing statements have a number you can call if you need financial assistance or other help—reach out and ask if you can talk to someone about getting help to pay your bill. If you don’t qualify for financial assistance, consider asking about a payment plan.
- Try not to pay your medical bills with a credit card—and be wary of medical credit cards and other payment products. There are certain rules and protections that govern the collection of medical debt that you lose when you transfer that bill to a credit card.
FIGURE 3
There are times where providers may use something called an “early out” vendor to help with in-house collection efforts. This means patients may receive phone calls, emails, and other contacts from what appears to be a collections agency but is actually just a second company working on behalf of the provider to try and collect payment—no debt has been sold at this point.
According to interviews with our beneficiaries, many people with medical debt make tremendous trade-offs to try and access (and pay for!) much-needed healthcare. They describe attempting to stretch necessary medications across two months instead of one because they can’t afford their prescription, which leads to health complications, which can then lead to more expensive treatment (including going to the hospital), ultimately leading to higher bills, and perpetuating the cycle.
Where Do We Go from Here?
Medical debt is unique among debt types—according to our survey work with PerryUndem, it is the only type of debt where blame is placed on institutions rather than individuals. People understand that medical debt, for many, is not a choice. Even with insurance coverage, patients are forced to contend with extremely high health care costs—indeed, 69% of people surveyed said they’ve received a bill they can’t afford, even with insurance. On balance, people try their best to pay their bills (often putting them on credit cards, taking out loans, or foregoing other critical needs like food) but it can be difficult, if not impossible, to crawl out from under the cycle of medical debt once you’ve received that first bill.
There is a tremendous amount of important work being done on medical debt—from advocates working to better understand the needs of their communities, to academics tracking the ebb and flow of debt across the country, to hospitals working to balance revenue needs with making billing practices and financial assistance more accessible, and lawmakers pushing for coverage expansion and trying to construct more robust consumer protections. Our health care financing system is broken, and we are tasked with figuring out how to fix it. There is clear consensus that the way America does health care is not working for anyone, but an incredible amount of work remains to be done to figure out what, exactly, it is that must be done.
- There is no centralized agency tracking medical debt, meaning most of our numbers are inferences from credit bureau reporting and other areas. ↩︎
- Placing a lien, suing a patient to collect debt, and garnishing a person’s wages all fall under the category of “extraordinary collection actions” or ECAs. The conversation around ECAs is complex—many providers note they don’t enjoy taking these steps—and RIP believes they are symptoms of an unhealthy system and should be banned or limited. ↩︎
- We should also note that people with disabilities have a significantly lower median income, meaning they are more likely to be low-income—another group of people with disproportionate amounts of medical debt. ↩︎
- The reasons for this are multi-faceted, as hospital-based care is typically more acute and more expensive than preventive care. ↩︎
- Note that non-profit hospitals can receive some money from Medicare and state Medicaid programs to help offset those losses. ↩︎
- As explained by The Sycamore Institute, good (or secured) debt can help borrowers build wealth, increase earnings, and ultimately become more financially secure. This includes things like home mortgages, student loans, and small business loans. ↩︎