Medical debt ‘catastrophic loop’ regularly plagues Americans, CFPB report details

Medical debt keeps getting worse for Americans across the country.

A new report Consumer Financial Protection Bureau (CFPB) found that US consumers held $88 billion in medical debt as of June 2021. Medical debt also accounts for 58% of all third-party collections. commercial lines (i.e., credit accounts shown on a credit report).

Most medical debt is under $500, although the report noted that many people with this type of debt have multiple collection accounts. This can affect how Americans receive health care as well as other aspects of financial well-being, such as access to credit.

“When it comes to medical bills, Americans are often caught in a catastrophic loop between their medical provider and their insurance company,” CFPB Director Rohit Chopra said in a statement. “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.”

Wenzle Hufford and his wife Lucynda Hufford both have serious health issues and incurred large medical debts that they were unable to pay, July 17, 2019. (Photo by Michael S. Williamson/The Washington Post via Getty Images)

“They want to avoid fees”

Part of the problem is that health care costs have risen dramatically over the past decade.

A report from the Commonwealth Fund found that health insurance premiums and deductibles for Americans with employer-sponsored coverage accounted for 11.6% of median income in 2020, an increase of 9.1% from 2010.

These high costs often force consumers to make a difficult choice: seek out the care they need and risk going into debt or postponing care in order to save money.

“What we’ve seen for low- and middle-income people is that it discourages people from seeking care,” said Sara Collins, vice president for health care coverage and access, previously. Commonwealth Fund at Yahoo Finance. “People with higher deductibles are less likely to get health care when they need it because they want to avoid the costs associated with it. We also know that when people get health care with high deductibles, they are more likely to report having medical debt or having difficulty paying their medical bills.

The CFPB report found that black and Hispanic people are more likely to have medical debt, along with young adults and low-income people. This is partly because people who are uninsured or who receive out-of-network care face higher costs since there is no insurance company to cover some of the costs.

Medical debt is also more prevalent in the southern half of the United States, especially in states that have not embraced the Medicaid expansion offered by the Affordable Care Act (ACA). People in debt who live in states without expansion have on average $375 more in debt than those in states that have expanded Medicaid and are more likely to report difficulty paying off the balance.

“A typical American injustice”

According to Eva Stahl, director of public policy at RIP Medical Debt, the report comes “at an important time” for the United States

“We view medical debt as a uniquely American injustice that prevents millions of people from achieving financial stability and subjects them to emotional anguish,” Stahl told Yahoo Finance. “While the report does not fully explore the inadequacies of the health insurance coverage system, it highlights the deep inequalities of medical debt and the long-term barriers to health and economic security that medical debt create.”

These problems can also affect other sectors of the economy. A investigation by found that about 25% of Millennials and Gen Z have skipped rent or mortgage payments due to medical debt.

Most medical debts are under $500.  (Graphic: CFPB)

Most medical debts are under $500. (Graphic: CFPB)

Consequently, medical debt has also had a negative impact on people’s credit scores.

In 2020, according to the CFPB report, 17.8% of credit files had at least one medical debt in collection. Additionally, Data of July 2021 showed that nearly 18% of Americans held medical debt that had been sent to collection agencies.

“The effects of medical debt on a credit report are intensely damaging,” Stahl said. “Our grantees typically request resources on credit repair and/or confirmation that removing RIP will help them improve their credit scores so they can buy a home, find a job, or buy a car…Although we can provide relief and help in the moment, it is not a long-term solution to a broken and inequitable health care funding system.

Adriana Belmonte is a reporter and editor and covers politics and health care politics for Yahoo Finance. You can follow her on Twitter @adrianambells and contact her at [email protected]

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