Medical debt has become so standard in the United States that today, as many as half of Americans reportedly carry some level of medical debt.
Now, a new analysis by the Kaiser Family Foundation (KFF), sheds additional light on just how much medical debt Americans have and who is most affected.
KFF’s analysis of the United States Census Bureau Survey of Income and Program Participation (SIPP) from December 2019 showed that collectively, Americans owed $195 billion in medical debt.
Overall, 23 million people—or one in ten adults—had significant medical debt, defined as $250 or more. Within that, 16 million people owed more than $1,000, including 3 million who owed between $5,001 and $10,000, and another 3 million who owed more than $10,000.
Neiko Johnson, 34, an IT professional, and his wife Alexis, 32, a general dentist, had $3,699 in medical debt. Though their medical debt qualifies as significant in the KFF definition, it represented a tiny slice of the Johnson’s overall debt. Primarily due to undergraduate student loans and debt from Alexis’ dental school, the couple racked up $460,000 in total debt.
It took four years but the Johnsons paid off all of their debts, becoming debt free in December 2021. Now they share their strategies with others at Secret To Finance.
Despite the relatively small scale of medical debt in the Johnson’s overall debt picture, paying off medical debt had an outsized impact on their success, according to Neiko.
“Our medical debt played a huge part of our debt-free journey because we used the debt-snowball method which focuses on paying off the smallest debt first regardless of interest rate,” he said.
This strategy allowed the couple to know out medical debt first and stop worrying about medical bills so they could turn their attention to other, larger debts.
Grappling with medical debt also affected their mindset about healthcare.
“After we finished paying off the medical debt, we made it a priority to be as healthy as possible so we limit the amount of trips we would need to the doctor,” he said. “We learned very quickly that medical debt can pile up and impact our budget.”
Who has the most medical debt?
The KFF analysis shows that medical debt hits certain populations harder than others.
People between 35 and 64 were more likely than others to have medical debt. Once Americans reach age 65, the age most Americans become eligible for Medicare, they are least likely to have medical debt. Six percent of people between 65 and 79 had medical debt, as did just 3% of people age 80 or older.
More women (11%) than men (8%) report medical debt.
While white and Hispanic adults reported medical debt at the same rate (9%), 16% of non-Hispanic Black adults had medical debt. Other surveys have similarly shown that Black Americans experience more medical debt than others.
Perhaps not surprisingly, insurance coverage and income affected rates of medical debt. Among people who were uninsured for six months or more, 13% reported medical debt compared with 9% of people who were uninsured for less than six months. People earning less than about $50,000 (or 400% of the federal poverty level) were four times more likely than people earning $75,000 or more to report having medical debt.
Consumers may get relief on their credit reports
When things don’t go as well as they did for the Johnsons, outstanding medical debt can go into collections and hurt consumers’ credit.
A February 2022 report from the Consumer Financial Protection Bureau (CFPB) showed that $88 billion of medical debt appeared on consumer credit reports as of June 2021.
According to Credit Karma, a personal finance company, medical debt has increased during the pandemic. The company reports that nearly 23 million Credit Karma members hold more than $47 billion of medical debt in collections. Since the pandemic, Credit Karma members have taken on an additional $1.9 billion in medical debt collections.
But the lingering stain of medical debt on credit reports may become a thing of the past—or at least cause less harm to consumer credit moving forward.
Last week, the three national credit reporting agencies (Equifax, Experian, and TransUnion) announced that they will stop including paid medical debt on consumer credit reports, effective July 1, 2022. Unpaid medical debts won’t appear on credit reports until it is 12 months old, up from six months, or if it’s under $500.
According to Manu Lakkur, director of product at Credit Karma, these changes limit the chances that medical debt appears on your credit report and gives you time to do something about it if it does.
“This [change] gives people more time to navigate the maze of medical billing and reimbursement to sort out any issues with their bills, figure out repayment plans, or take alternate courses of action,” Lakkur said. “Most importantly, it gives you more time to focus on your health first.”
While these changes move in the right direction, Lakkur encourages consumers to make a plan and be ready to address medical debt, which will not be eliminated altogether.
Lakkur’s recommended strategies include getting familiar with what your health insurance does and doesn’t cover to minimize surprises, reviewing your medical bills for errors, negotiating medical bills or requesting a payment plan, checking your credit reports, and speaking up early if you are struggling to pay medical bills.
Above all else, he says be proactive and be sure to exhaust all your options to try to prevent your medical debt from going into collections.
“From personal experience, my advice is, don’t give up,” Lakkur said.
He once faced an unexpected and costly medical bill from being taken to an ‘out-of-network’ emergency room for an emergency. His bill included a galling $482.70 charge for eye drops.
“My discussions with the insurer and the hospital went absolutely nowhere and I felt helpless,” he said.
He came across an article about the high prices at the hospital he had visited and how a member of the Board of Supervisors was trying to do something about it. Lakkur contacted his office, shared his story, and they negotiated with the Department of Health to get his bill waived.
“I would have never expected that outcome upfront,” Lakkur said. “The moral of that episode for me is, proactiveness can pay off when it comes to medical bills.”