Americans owe nearly twice as much medical debt as previously known, and the amount owed has become increasingly concentrated in states that do not participate in the Affordable Care Act’s Medicaid expansion program.
A study published Tuesday in JAMA found that collection agencies held $ 140 billion in unpaid medical bills last year. An earlier study, examining debt in 2016, estimated that Americans had $ 81 billion in medical debt.
This new paper took a more comprehensive look at patients with unpaid medical debts, including those who do not have a credit card or bank account. Using 10% of all credit reports from the TransUnion rating agency, the paper finds that about 18% of Americans have medical debts in collection.
Researchers found that between 2009 and 2020, unpaid medical bills became the number one source of debt Americans owe collection agencies. Overall debt, from both medical bills and other sources, declined during this period as the economy recovered from the Great Recession.
“If you think of Americans who get phone calls, letters and knocking on the door from debt collectors, it’s most often because of the American health care system,” said Neale Mahoney, health economist at Stanford University and lead author of the article.
The $ 140 billion debt does not count all the medical bills owed to health care providers because it only measures debts that have been sold to collection agencies. The growing number of lawsuits hospitals are bringing against patients to collect debts, which can result in legal fees or wage garnishments, are not included in the figure. Neither are the medical bills that patients pay with credit cards or long-term payment plans. Some of the difference between the new estimate and the old, smaller estimate may reflect differences in how different rating agencies categorize debt.
The new document does not include data during the coronavirus pandemic, which is not yet available.
The enhancing effects of the expansion of Medicaid did not come as a big surprise to the authors of the article. Previous research has shown how Medicaid coverage can reduce medical debt. In developed states, most low-income adults can get coverage without paying premiums and with minimal cost-sharing. Mechanically, Medicaid tends to eliminate the types of medical bills that result in unpaid debts.
But Mahoney said he was shocked to see the growing inequality in medical debt that disparate state decisions appear to have caused. States that refused to expand Medicaid – especially in the South – began having more medical debt before Obamacare passed, and since other states expanded Medicaid, the chasm has widened. In 2020, Americans living in states that did not expand Medicaid owed an average of $ 375 more than those in states that participated in the program, an increase of about 30% over the gap that existed there. year preceding promulgation.
Amy Finkelstein, professor of economics at MIT, was a co-author of an influential study that showed how Medicaid coverage can improve the financial health of Americans. She studied what happened when Oregon used a lottery to randomly offer Medicaid coverage to a portion of low-income adults seeking coverage.
The study found substantial improvements in measures of the financial health of those covered. He also saw improvements in the mental health of these people – increases too large to be explained by new medical treatments alone.
Finkelstein said the new document is a reminder that health insurance often acts as a powerful buffer against financial adversity.
“It’s a misnomer – it’s not just about ensuring your health,” she said. “It’s actually to protect you economically in the event of poor health.”
Medical debt is different from other types of debt because people often cannot choose to incur it. A poorer person may choose to buy a cheaper car than their wealthier neighbor, but if they have a heart attack and need surgery, they will be billed as high as their neighbor.
The new document finds that medical debts are higher in the poorest neighborhoods. In the lower-income postal codes the researchers studied, people owed an average of $ 677. Those in the wealthiest postal codes owed an average of $ 126. These numbers represent the general population, not just debt holders.
But medical debts are also different in another way – they’re much less likely to be paid off. Previous research suggests that many people with medical debt have other types of debt that may be a higher priority. Failure to pay your utility bills could result in closings, and failure to pay your car loan could result in repossession of your car. Medical debt, on the other hand, tends to primarily hurt people’s credit reports and peace of mind.
“Debt collection agencies have a very low chance of collecting these debts,” said Benedic Ippolito, senior researcher at the American Enterprise Institute and co-author of a previous article examining medical debt in America. “If you had to choose between keeping the lights on and paying your mortgage and paying a doctor you will never see again, I think many of us would make the same decision.”
Democrats in Congress have recently shown strong interest in providing coverage to millions of low-income Americans who live in the 12 states not participating in the Medicaid expansion.
Democrats included the idea in last week’s $ 3.5 trillion reconciliation package. Lawmakers are still debating the right policy to close the coverage gap – whether to provide the uninsured with subsidies to purchase private coverage, for example, or to work with cities that wish to expand coverage locally – as well as how to pay for it.
The most recent proposal comes from the Senses. Raphael Warnock and Jon Ossoff of Georgia and Tammy Baldwin of Wisconsin, who represent states without expansion. Last week, they introduced legislation that would allow the federal government to provide Medicaid coverage in states that refuse to do so.
“Scaling up Medicaid is the most effective solution to closing our state’s coverage gap,” Warnock said on a recent call with reporters.
Others see the need for a bigger change. During his presidential campaign last year, Senator Bernie Sanders of Vermont proposed to eliminate medical debt altogether – as part of a plan to move the country to a single-payer system in which no one pays. directly to medical care.
Some have also come up with smaller ways to make medical debt less painful.
Senator Chris Murphy of Connecticut introduced legislation last year that would require hospitals to publicly report on how they collect debts and cap interest rates patients may owe. The law would also require clear communication from hospitals about debts owed before they can turn to a collection agency.
“I understand that hospitals are under pressure to take every dollar from their consumers,” Murphy said in a recent interview, “but I think they should refrain from the most aggressive debt collection practices.”