- America’s medical debt problem has parallels to the student debt crisis, experts told Insider.
- Both are financially debilitating, putting people at risk of not being able to afford rent and food.
- The Biden administration is already taking steps to address this, but the challenge of helping more low-income borrowers remains.
The Biden administration is finally delivering long-promised relief to more than 40 million Americans with federal student loans, half of which will see their debt completely erased. But medical debt experts say student loans are just one part of the household debt crisis that is crippling millions of Americans.
In late August, President Joe Biden announced up to $20,000 in student debt for federal borrowers earning less than $125,000 a year, which should completely eliminate the balance for 20 million borrowers. It takes away some of what is often a prohibitive burden for many Americans, with interest snowballing into an ever-growing collection of bills that become impossible to pay.
For some, medical debt can be just as prohibitive. Medical debt in the United States currently stands at around $195 billion, according to the Kaiser Family Foundation, and 23 million Americans have medical bills of at least $250. Three million people have unpaid medical bills totaling more than $10,000. Like student loan borrowers, those with medical debt aren’t immune to unfair practices — the Consumer Financial Protection Bureau previously found that inaccurate medical billing cost Americans $88 billion a year last.
When medical and student debt snowballs, they become vectors for potentially devastating financial consequences, leading to people losing their homes and facing lawsuits, for example. Medical debt experts only see a parallel between the two crises. On the other hand, a major difference is that medical debt is usually an unavoidable life or death situation, whereas student loans are often a choice.
“You literally had no choice because this was an emergency situation,” Berneta Haynes, an attorney at the National Consumer Law Center, told Insider. “The difference is that medical debt can happen to anyone, and it can’t be planned.”
Medical debt creates ‘a racial wealth gap and a racial health gap’ in addition to burdening young and old
Black college graduates are more likely to be in debt than their white peers, data shows, and that’s because they historically have less wealth than their white counterparts. It’s a wealth gap that also translates into medical debt, Haynes said; one in three black adults has overdue medical bills, compared to less than one in four white adults, she found in a study she published this year. She added that black households are disparately impacted by aggressive medical debt collection practices, such as civil lawsuits and arrests for unpaid medical bills.
“There’s a racial wealth gap and a racial health gap,” she explained. “Black people have less wealth, black families are less able to meet those bills when they come in.”
Haynes also noted that young adults are more likely to have student debt, medical debt, or both. Nearly half of medical debt is owed by young heads of households – those under the age of 44 – the US Census Bureau found last year. Likewise, more millennials, the oldest of whom are 41, according to the Pew Research Center, have student debt than any other generation.
This does not mean that the elderly are not affected. As Insider previously reported, student borrowers over 50 continue to carry decades-long debt, forcing them to postpone retirement, and older Americans who are not yet eligible for Medicare may experience similar issues with medical debt.
Unpaid medical bills have significant financial consequences
Experts also said the financial consequences of defaulting on medical debt, such as student loans, can be devastating. Haynes cited liens on a person’s home — a legal claim on property that can be used as collateral to pay off a debt — as one way medical debt can become parasitic. If you default on student or medical debt, lenders can also take a portion of your paycheck directly, up to 25% of it.
“People are less likely to get a loan, and there are aggressive collection practices like lawsuits,” Ruth Lande, vice president of hospital relations at RIP Medical Debt, a health-focused charity, told Insider. elimination of personal medical debt.
Medical debt lawsuits are more common than student debt lawsuits, but both happen. And while medical debt is the most common business line of collection in the United States, it also occurs for student loans. And collection agencies often employ strong tactics for both. According to the National Consumer Law Center, collectors often misrepresent the rights of borrowers, and government oversight of collection agencies is generally weak.
“There are a lot of things we don’t see because of the opacity of the medical industry”
Recent legislation aimed at tackling student debt is a helpful first step, but only scratches the surface of debt.
The No Surprises Act came into force this year, which aims to restrict surprise billings under certain conditions, was one of the measures taken by the federal government. Senator Bill Cassidy called it “an important step in our efforts to reduce health care costs.” Additionally, three major credit bureaus have chosen to remove 70% of medical debt from credit reports, after working with the Consumer Financial Protection Bureau.
In April, the White House also unveiled ways to help Americans with medical debt, including increasing oversight of inaccurate medical bills and equipping consumers with educational tools to help them manage confusing billing practices.
They ease the burdens that many Americans face, but have blind spots, advocates said.
Haynes pointed out that a lot of medical debt is paid by credit card, meaning it’s not recorded as medical debt — it’s anonymized as credit card debt. This means that medical debt paid with credit cards will still show up on credit reports in the future.
Lindsey Muniak, medical debt program manager at Debt Collective, a debtors’ syndicate and nonprofit, told Insider that while nonprofit hospitals receive billions of dollars in tax relief in exchange for providing “charity care” to low-income patients hospitals often skimp on, the Wall Street Journal reported this year. The majority of American hospitals are non-profit. She wants the IRS to set clearer guidelines for vetting hospitals, she said.
“There are a lot of things that we don’t see because of the opacity of the medical industry,” Muniak said.