Americans spend twice as much on health care as people in other wealthy countries, according to the Organization for Economic Cooperation and Development. For the past two weeks on our series The Price We Pay, we’ve explored what the U.S. government and many businesses have been doing to try to contain those costs.
Today we look at the impact of medical debt. According to a study published in the Journal of the American Medical Association, overall, the amount of medical debt in collections in the U.S. went down between 2009 and 2020. But in the South, it actually increased. Harvard Business School professor Raymond Kluender is one of the authors of the study and he joins us to explain the findings.
Marshall Terry: First, just how common is medical debt in collections in the U.S.?
Raymond Kluender: So, we look at data from credit reports, which means we're only going to see medical debt that's been sent to a third-party debt collector and is reported on credit reports. But we find that 17.8% of individuals in the United States had medical debt in collections as of June 2020, which means that basically 1 in 5 Americans has a medical debt in collections at any given point.
Terry: Now in the South, you found that number is closer to 24% — by far the highest of any region in the country. So, what's behind that?
Kluender: So, we think the answer there is pretty straightforward. We look into whether or not states took advantage of the Affordable Care Act Medicaid expansion and whether they took that additional money and increased the pool of patients who are eligible for Medicaid. What we find there is that states that did not expand Medicaid, which were predominantly in the South, have seen their medical debt levels be pretty stable, whereas states that expanded Medicaid saw their medical-debt-in-collections levels fall by nearly half.
Terry: And North Carolina is one of those states that has not expanded Medicaid. Could other factors besides Medicaid expansion be at play in the South? I mean, could it also just be that people in the South have more unhealthy eating habits and whatnot compared to other parts of the country?
Kluender: Yeah, there are many different potential contributors to medical debt levels. You can think of other things like cost-sharing, whether people have big deductibles — and that varies by region. Income levels, of course, are going to be really important in kind of determining whether people are able to pay back some of the medical bills that they're charged with. So, I think there are a lot of other factors, but at the end of the day, you know, medical debt is caused by not having insurance against medical expenses.
It seems a little straightforward, but health insurance is really just a product in addition to helping to provide some access to care. But primarily, it's a financial product that protects people against the risk of having large out-of-pocket medical bills. And so that's why we think the Medicaid expansion, which drove a huge increase in the share of individuals who are insured, is kind of the primary contributor to these changes in medical debt.
Terry: You mentioned people's ability to pay their medical bills. What about income levels? Who is affected the most by medical debt?
Kluender: Yeah. So, we find that, predictably, folks with lower incomes are much more affected by medical debt. And this is the saddest part of our story, I think, and the study that we did... In all of the states that expanded Medicaid, which is targeted at lower-income folks, the Medicaid expansion increased eligibility for Medicaid coverage up to about 138% of the federal poverty line. So, it's the lowest-income people who are least likely to be able to pay their bills who are gaining access to health insurance through the Medicaid expansion.
"One thing that we've discovered in doing this is actually how much of the medical that we might be missing by just looking at credit reports, and there's not really any good way to estimate the amount of debt that's not reported to credit bureaus. But our sense is that actually the medical debt crisis is potentially a lot worse than we're able to observe."Raymond Kluender, Harvard University
Terry: How does medical debt breakdown among racial groups?
Kluender: That's not something that we were able to look at with this study.
Terry: How does medical debt, overall, compare to other kinds of debt, like credit card debt, in the U.S.? What's the overall average amount that people owe?
Kluender: As I mentioned, 1 in 5 Americans had some amount of medical debt in collections, and so those who do have medical debt have about $2,400 of medical debt in collections. This amounts to around $429 per American with a credit report, as we observed. This is larger than all other sources of nonmedical debt in collections combined, which is about $390 dollars per American.
Terry: What's the impact when medical debt does go to collections?
Kluender: People are often frequently contacted by third-party debt collectors. This debt is often reported to their credit bureaus, but it's not always. One thing that we've discovered in doing this is actually how much of the medical that we might be missing by just looking at credit reports, and there's not really any good way to estimate the amount of debt that's not reported to credit bureaus. But our sense is that actually the medical debt crisis is potentially a lot worse than we're able to observe because many debt collectors don't necessarily report to the credit bureaus.
Terry: What kind of medical debt could you be missing?
Kluender: Anything that is still being collected on by a hospital. So, hospitals don't report those debts to the credit bureaus until they sell them on to a third-party debt collector. And many hospitals, for reputational reasons or because they care deeply about ensuring the financial well-being of their patients, they won't report those or often they won't sell those to third-party debt collectors at all. So, we wouldn't be able to see any of those debts.
Terry: You've written that the worst part about getting sick isn't the medical bills themselves, but rather the loss of income while people are sick. What have you found?
Kluender: Yeah. Here I want to kind of talk specifically about those who do have health insurance. In a study that we did was published a few years ago, we looked at everyone — people who were hospitalized specifically. And what we found is that for those with insurance, the hospitalization results in lost earnings that are five times as large as the increase in out-of-pocket medical expenses that they face. These are quite substantial earnings losses that aren't well insured by the American social safety net. So, you know, we don't have good coverage on short-term disability insurance or sick leave. Those often aren't provided by employers or aren't mandated.
And so, what we find is that among those with insurance, hospitalization results in lost earnings that are so large that they're kind of similar to someone who works in a factory that's been permanently closed and got laid off. That's the kind of similar earnings trajectory we see for those who do have health insurance. And obviously, this is compounded for those without insurance because they're also facing these sky-high medical bills.
Terry: So, what's the remedy, though, for the situation, even for somebody who does have health insurance?
Kluender: Yeah. So, you know, in other countries, you don't see these kinds of earnings patterns, or you see them well-insured by other types of insurance. A friend of mine ... wrote a paper looking at the Canadian social safety net. And what he finds is that unlike in the United States, when someone is hospitalized and is unable to work for an extended period of time, but maybe not so long, but they want to be on permanent Social Security disability insurance, he finds that a combination of short-term disability insurance and sick leave policies can actually help people cope with the negative consequences of hospitalization. So, they can basically help ensure those earnings so that you're still getting a little bit of money while you're taking the time to recover. And we just lack any robust short-term disability insurance or sick leave policy in the United States.
Terry: Thank you for joining us today.
Kluender: Thanks, Marshall.
