Americans burdened with medical debt — the government needs to step up

The U.S. health care system aims to heal and comfort. At the same time, it has crippled Americans with $140 billion in medical debt. 

That amount, which we uncovered in recent research just published in the Journal of the American Medical Association, is substantially more than the prior $81 billion estimate. 

Here’s how that breaks down: Nearly one in five Americans have some medical debt on their credit report and those with medical debt owe more than $2,400 on average. Over the last decade, medical debt has grown to account for more than half of all debt in collections, exceeding debt in collections from credit cards, personal loans, utilities and phone bills combined. If you have a debt collector calling you up or knocking on your door, more often than not it’s because of an unpaid medical bill. 

But the news isn’t all bleak. In many parts of the country, medical debt is actually declining thanks to the Affordable Care Act (ACA). The law encouraged states to expand their Medicaid programs to cover low-income adults. To date, 38 states and the District of Columbia have expanded Medicaid. Twelve states — mostly in the South — have not.

State governments have a new window of opportunity to deliver for their people. The American Rescue Plan provides temporary additional incentives for states to expand Medicaid. There are discussions of additional carrots for holdout states in the budget negotiations now underway in Congress. 

These Medicaid expansions have had huge impacts on medical debt. In states that expanded coverage, medical debt levels declined by 44 percent versus only 10 percent in states that did not expand Medicaid. Trends for non-medical debt were almost identical across expansion versus non-expansion states, indicating that the declines were caused by the insurance expansions and not other factors. 

Moreover, the Medicaid expansions provided the most help to those in greatest need. Because the Medicaid expansions targeted the poor — who were often also uninsured — states that expanded Medicaid saw the largest reductions in medical debt in the lowest income communities. Worryingly, in states that did not expand Medicaid, medical debt levels increased the most in the communities with the lowest income. 

I’m a professor at Stanford University and a health economist. I teach my students about how health insurance can increase access to medical care and improve health — including new rock-solid evidence on how the ACA’s Medicaid expansions and subsidized coverage saved lives, particularly among older enrollees. 

While the impacts on health are paramount, I also teach my students that health insurance is a financial product and that its impact on household finances should not be ignored. An emerging body of evidence shows how financial shocks can ripple through a household budget. Although exact estimates vary, extreme medical bills can force families into bankruptcy. 

Researchers still have much to learn about the full toll of medical debt — and the benefits of policies that could be used to reduce its burden. Together with my colleagues, we are working with our nonprofit partner RIP Medical Debt to study the impacts of medical debt on stress and anxiety. We’re working with Kaiser Permanente to study how financial relief programs — which eliminate medical debt accrued from prior medical bills — can encourage follow-up health care. 

Medicaid expansions have been a highly partisan issue — Democrats want it, Republicans don’t (generally speaking). I’m not an expert at reading the political currents, but it seems like the tide may be starting to turn. 

Over the last 10 years, the number of Americans who think that the federal government should make sure that all Americans have health care has increased from 47 to 56 percent. In the last few years, voters in Idaho, Missouri, Nebraska and Utah — by no means hotbeds of progressive activism — have voted in ballot initiatives to expand Medicaid. During the pandemic, enrollments in Medicaid shot up by 10 million people or 14 percent, indicating broad-based demand. 

So, with the American Rescue Plan putting money on the table to help expand Medicaid, now is the time for action. 

If policymakers take no action, in the coming months and years households will continue to receive letters and phone calls from debt collectors, pressing for payments for often staggeringly large medical bills. The pandemic has also imposed a tremendous burden on households across the country — and underscored the view that we’re all in it together when it comes to health. Now is the time for governments to step up and protect their citizens from the burden of medical debt. 

Neale Mahoney is a professor of economics and George P. Shultz Fellow at SIEPR, Stanford University.