Internet Explorer 11 is not supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

Millions of Americans Are Struggling With Medical Debt

Medical debt is growing and hitting middle-class Americans hardest. States have started acting to relieve the burden, but more can be done.

Connecticut Governor Ned Lamont unveils his budget during his State of the State Address
Gov. Ned Lamont is devoting funds from the American Rescue Plan Act to erase medical debt for Connecticut residents.
Aaron Flaum/Hartford Courant/TNS
Medical debt affects 100 million American adults far and wide, including Kayce Atencio in Denver. At age 19, Kayce saw the medical bills pile up after a heart attack due to a condition buried in his DNA. He couldn’t fight the debt collectors and had to declare bankruptcy at age 25. Now 30, Kayce’s credit score has tumbled even as he continues to pay down his medical debts.

Kayce is not alone. More than half of all bankruptcies in the United States are tied to medical issues. The average family with medical debt owed $18,660 in 2021, which was a 50 percent increase from five years earlier. Medical debt causes patients to delay care, and providers sometimes deny care to patients with medical debt. Unfortunately, having health insurance is no guarantee of financial protection. Two-thirds of adults under 65 with health coverage have problems paying off medical bills or medical debt.

Lawmakers are stepping up to help. For example, Colorado recently banned credit reporting agencies from using medical debt in their credit scores on consumers like Kayce. The Biden administration is on the verge of doing the same.

In the last two years, state and local officials in 17 states have taken a wide variety of actions against medical debt. And this year, at least 17 state legislatures are currently considering similar actions. Their efforts fall into three categories:

Graphic showing states that have acted on medical debt
Seventeen states have acted recently to address medical debt. The same number of states are considering new proposals this year.
First, states are stopping aggressive debt collection. Unless limited by law, hospitals and health providers can take patients’ wages and homes while pursuing medical debt. They can also turn the debt over to bounty hunters who specialize in debt collection. Vermont lawmakers took action after hearing from hundreds of patients and capped the amount that hospitals and other health-care facilities can collect from lower-income patients at 5 percent of their income. They also blocked hospitals from selling debt to debt collectors, which ends a big incentive for collection agencies to go after patients regardless of their circumstances. Tennessee increased the portion of a home’s value that people can keep when they are sued for debt, which is known as a homestead exemption. Delaware has gone a step further and banned the taking of patients’ wages, homes and bank accounts for medical debt.

Second, states are strengthening financial assistance at hospitals. Federal law requires nonprofit hospitals to offer patients financial assistance planning based on income, but it does not specify how much. California has specified that hospitals must provide financial assistance to patients with incomes up to four times the poverty level. It has also regulated how hospitals should provide patients with information about their charity-care programs. Similarly, Maryland now requires hospitals to provide income-based financial assistance to patients and delays the sale of debt or credit reporting for 180 days.

Finally, states are erasing billions of dollars of patients’ debts. As one consumer advocate put it, “you can’t get blood from a stone.” That is why medical debt collections are usually unsuccessful. They get only a fraction of the original amount of the debt. Some former debt collectors saw that as an opportunity to start a charitable organization called RIP Medical Debt, which buys medical debt from collection agencies and hospitals for a penny on the dollar. Under Democratic Gov. Ned Lamont, Connecticut has launched the first statewide program using RIP Medical Debt. That will abolish $650 million in medical debt, helping about 250,000 residents with incomes under four times the federal poverty level. Arizona has done the same as a follow-up to its statewide ballot initiative on medical debt, which passed decisively in 2022. Last month, Arizona Democratic Gov. Katie Hobbs announced a program to abolish up to $2 billion in medial debt.

Behind all this action is a simple political dynamic. Medical debt has been hitting American families hard. The middle class has the highest rates of medical debt. Seventeen percent of middle-class households ($43,700 to $160,800 in annual income) had medical debt in 2021, compared with 15.3 percent of low-income households and 9.8 percent of those with high incomes.

Although the middle class has higher rates and amounts of medical debt, the burden of debt is heavier for low-income families. The average amount of debt exceeded their annual income from 2017 to 2021 for families in the lowest fifth of income. Even for the highest-income families, those in the top fifth, their medical debt averaged 10 percent of their annual income.

Black and Hispanic Americans are more likely to have medical debt. Their medical debt rates are 22.5 percent and 17.6 percent, compared to 13.4 percent for white Americans. Black and Hispanic Americans are often more vulnerable to medical debt because they have less health-care coverage. About 25 percent of Hispanic and 12.7 percent of Black Americans lack health insurance, while 7.5 percent of white Americans are uninsured.

Fighting medical debt is a sympathetic cause because no one asks for it and no one wants to see it. Two-thirds of Americans support medical debt relief, making it substantially more popular than student debt relief, which has 50 percent support. The medical debt fight is also a rallying cry for broader reforms because it is a symptom of so many problems: Soaring prices that make care unaffordable, inadequate coverage that leaves families financially vulnerable and inequitable access to care that leaves many with bills they cannot pay.

To voters, fighting medical debt is a tangible way to lower their costs. Although inflation is falling, many individuals are still crippled by high costs, especially in health care. State and local officials can do more to limit the damage to people’s lives from medical debt.

David Kendall is the senior fellow for health and fiscal policy at Third Way.

Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
From Our Partners