In March of 2022, the Consumer Financial Protections Bureau (CFPB) released a report highlighting the troubling landscape of medical debt in the United States. The CFPB is a U.S. government agency responsible for providing protections to consumers within the financial sector. They have taken an interest in the ways medical debt affects the financial health of individuals. Medical debt can be sent to debt collectors and end up on an individual’s credit report, negatively affecting their credit score and ability to access affordable loans, placing this issue in the purview of the CFPB. The agency reported an astonishing $88 Billion of medical debt on consumer credit records as of June 2021. This debt disproportionately affects people with low incomes, Black and Hispanic people, veterans, and younger and older adults. These disparities have only grown wider over the course of the pandemic.
Medical debt is a unique form of debt. The CFPB reported that, unlike traditional debt, medical debt is not indicative of future repayments. People also do not seek out medical debt. It is a result of soaring medical prices, inadequate insurance, and unfair billing practices. Most of the $88 Billion debt on credit reports is made up of bills for amounts due of less than $500. While many people will have multiple medical debt accounts in collection, 20% of households in the U. S. report having medical debt. Medical collections are listed on 43 million credit reports and make up 58% of all debt collection accounts on credit reports.
This report shed light on the disproportionate way medical debt is distributed. The Southern states have a reported 23.8% of the population having medical debt in collections, versus only 10.8% of the population in the Northeast. There are multiple reasons this discrepancy exists. A major reason for this is the refusal of expansion of Medicaid in many of these Southern states. People in states that did not expand Medicaid in 2014 had an average of $375 more in new medical debt than people in states that did. The CFPB highlighted that Medicaid expansion is linked to reduced Chapter 7 bankruptcies and increased personal credit scores.
There is a large disparity in the racial distribution of medical debt, as well. This is demonstrated in the percentage of households that hold medical debt. The largest being 27.9% of Black households holding medical debt. Of Hispanic households, 27.1% have medical debt. This is then followed by 23.3% of households in the other category, which includes Native Americans. This is compared to white households, where only 17.2% hold medical debt. 9.7% of Asian households hold medical debt. Although this seems radically lower, the amount of medical debt held by Asian households in America is nuanced (see blog post).
The pandemic highlighted a wide range of inequities across the United States, and the CFPB report revealed that medical debt was no different. 58% of Americans of color were concerned about out-of-pocket costs due to COVID-19. This is compared to 32% of white Americans. In 2021, 40% of people who were uninsured said they had problems paying medical bills. Only 28% of those with insurance reported the same.
The CFPB report also showed how the pandemic increased the problems surrounding medical debt. The Commonwealth Fund found half of those affected by COVID-19-related hardships (including contracting COVID-19, losing employer-sponsored insurance, or losing income) had medical bills or medical debt problems. Due to the pandemic, 6% of adults reported losing their health insurance. One in five Hispanic adults are uninsured, twice that of the average adult. A person having health insurance does not guarantee they will avoid medical debt either; 71% of insured individuals hospitalized with COVID-19 received at least one bill. Their mean out–of–pocket spending was $788 and 2.5% had bills over $4,000.
Struggles with medical debt also further worsens health and wellbeing, as it often discourages people from seeking out needed medical care, for fear of compounding their debts. In 2019, five in 10 people who had medical debt avoided getting further medical care. Looking at the racial disparities of medical debt distribution described above, this is another factor in the divide of health care access in America. The CFPB looks to do more research in how medical debt is affecting people and best practices to assure access to financial assistance. Credit reporting companies have come out since the release of this report to state they will be eliminating up to 70% of medical debt from credit reports. While this is a good first step towards assisting the financial wellbeing of those with medical debt, there is more to be done to prevent the problem from existing at all.