Medical debt has been a significant concern for many Americans, with unpaid balances posing a financial burden on individuals and families. According to new research by the Urban Institute, the share of people with medical debt in collections that appears on their credit reports has decreased over the past decade. In 2013, 19.5% of Americans had medical debt in collections, but by 2023, this figure had fallen to 5%.
The reduction in medical debt collections can be attributed to efforts made by major credit bureaus in 2022 and 2023. These bureaus removed paid medical debts from credit reports and delayed reporting of unpaid debts. As a result, consumers saw a significant improvement in their credit scores, making it easier for them to access other forms of credit, apply for jobs, and rent housing. While this development is positive, the median medical debt in collections actually increased during this period, rising from $842 in 2013 to $1,493 in 2023.
The research also highlighted variations in medical debt collections across different states. States in the South, such as West Virginia, South Carolina, Oklahoma, Louisiana, and Mississippi, experienced the most significant reductions in medical debt collections from 2021 to 2023. Colorado, on the other hand, had no medical debt in collections in 2023 after implementing a ban on credit bureaus including medical debt in credit reports. States like Minnesota, Hawaii, Vermont, and Washington also reported low levels of medical debt in collections in 2023.
The Consumer Financial Protection Bureau has proposed banning medical bills from credit reports, a move that could potentially remove up to $49 billion in medical debts from credit reports. While this step is beneficial for debtors, it does not address the underlying issue. Recent research by KFF indicates that individuals with medical debt are more likely to face financial vulnerability compared to those without such debt. This vulnerability manifests in various ways, including carrying credit card balances, lacking a rainy-day fund, and struggling financially.
Adults with medical debt are more likely to engage in behaviors indicative of financial stress, such as overdrawn checking accounts, contact by debt collection agencies, and use of pawn shops or payday loans. Medical debt can also lead to bankruptcy, particularly for individuals who are unable to work due to high debt levels. Some states, cities, and counties are taking steps to alleviate the burden of medical debt on Americans, canceling billions of dollars in medical debt through legislative initiatives like the American Rescue Plan Act.
Forgiving medical debt has garnered widespread support among the public, with a study indicating that more than half of adults find it extremely or very important for medical debt to be forgiven. For individuals struggling with medical debt, there are several steps they can take to seek financial relief. Negotiating with network providers, especially for high deductible plans, and shopping around for affordable prescription prices are practical strategies to manage medical expenses effectively.
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