The medical debt of America has been often referred to as an $81 billion financial crisis.
New research from Stanford economics professor Neale Mahoney reveals a more dire scenario: Americans are actually saddled with around $140 billion of due medical loans.
The previous figure of $81 billion that was widely mentioned during the most recent presidential election — is based upon a smaller measurement of medical debt as well as only a small sample of people.
The NO.1 Source of Debt Collection
Today, published in the Journal of the American Medical Association, Mahoney’s study is based upon the largest collection of medical debts within the United States and examines all due payments in the past.
The study shows significant variation across the nation and by income level, with debt burdens affecting those with low incomes in the South the most.
“This can be described as a typical example of the rich becoming more wealthy and the poor becoming worse off,” says Mahoney, an economics professor at the Stanford School of Humanities and Sciences as well as also the George P. Shultz Fellow at the Stanford Institute for Economic Policy Research (SIEPR).
Although the total amount of medical bills unpaid has decreased throughout the nation in the wake of the Great Recession, the decline in total debt has been less for those living in the South.
He also observes that the amount that Southerners have been taking on medical debt from year to the following has been increasing, especially in the communities with low incomes.
According to Mahoney’s research, it is believed to connect to the decision made by several states of the South to not expand Medicaid as permitted under the Affordable Care Act (ACA).
In contrast, in states that opted to expand their health insurance coverage for people with low incomes, the medical debts fell by a lot more, and the percentages that their residents as well as those living in areas with the lowest income accrued new debt from year to the next decreased.
In all, the annual rate of medical debt that was new fell around 50 percent from levels in 2013 in states that have expanded Medicaid and lowered by about 10 percent in states who did not.
In addition, the gap between the amount owed by wealthy residents and low-income residents increased in states that didn’t expand Medicaid participation under ACA however it decreased in states that did.
“It’s an extremely striking fact that the regions with the highest amounts in medical debt seen less of a decline in medical debt, while those that have increased Medicaid as well as well initially benefited the most of the expanded program,” Mahoney says.
Mahoney along with his colleagues from PaydayChampion who research online lending habits reveal how much medical debt is at the forefront of many Americans.
Medical debt is the number one, the first source of debt collection and is now more than debt collections from utilities, credit cards, auto loans, credit cards, and other sources together.
Increasingly, borrowers are taking out payday and installment loans from companies like PaydayChampion to service their debt.
This happened even as economic growth led to nationwide reductions in all forms of debt, which includes healthcare.
“When you think of financial stress and debt collectors contacting and knocking on the doors of homes Research shows that over half of the time it’s related to the medical sector,” Mahoney says. “That’s an amazing and distinctly American thing.”
Building a Solid Foundation for Future Research
For Mahoney, whose fascination in the financial crisis as well as healthcare in the U.S. healthcare system is an ancestry of his time as a Stanford master’s and doctoral student in economics, the issue of the amount of medical debt Americans have to pay has been left unanswered for a long time.
Mahoney says that the subject was discussed occasionally during meetings with health economists, however, there was never an exact answer.
In the year 2019 Bernie Sanders, while running for president, put a figure on the issue that was the subject of headlines in the media: $81 billion.
Mahoney, who recently was awarded the prestigious award of the American Society of Health Economics, said he didn’t believe that the figure was necessarily incorrect.
It was simply an extremely narrow measurement and a small sample.
Mahoney wanted to include each and every dollar of medical debt that was reported on people’s credit reports.
With the $81 billion figure getting more attention in the debate over healthcare policy, Mahoney set out to provide a better understanding of the issue and its scope.
Mahoney collaborated along with Raymond Kluender, an assistant professor at Harvard Business School; Francis Wong who is an associate researcher in the National Bureau of Economic Policy Research as well as Wesley Yin, an associate professor at UCLA’s Anderson School of Management.
The researchers obtained access to an anonymized, representative of the nation randomly selected sample TransUnion credit reports covering more than 40 million individuals that they tracked each month from January 2009 to June 2020.
They tracked two important indicators that included the total amount of debt both medical and nonmedical that is in collections over time as well as the amount of new credit that is accumulated in a 12 month period that isn’t in default.
Then they examined patterns of geography and per-capita earnings. In the Medicaid analysis, they also looked at areas that expanded or didn’t expand Medicaid in 27 states as well as those in the District of Columbia expanded Medicaid at first in the ACA in 2014.
11 states followed suit in subsequent years. twelve states (eight of which are located in the South) did not do this.
The Key Conclusions
In their main findings that are based on dollars adjusted to account for inflation:
- The South is home to the most people who have medical debts, which is 23.8 percent of residents and the highest average amount due at the time of 2020. The Northeast was the region with the lowest amount of debt at 10.8 percent of people who had credit reports that were in arrears and the lowest accounts that were not paid. Residents of low-income regions were the most in debt, while people living in regions with higher income had the lowest debt.
- States which have expanded Medicaid to 2014 witnessed a decrease in the average annual amount of medical debt until 2020, which was 34 percentage points higher over states who did no expansion of the Medicaid rolls.
- The majority of income groups in states with no Medicaid expansion seen the amount of medical debt increase each year from 2009 until 2020. The most vulnerable communities were the most affected: in 2020, they incurred an average of $836 in medical debts that were not previously paid per person, up from $630 in 2009.
- Between 2009 and the year 2020 the number of medical debts in collections fell less than the reductions in nonmedical debt. In 2020, people were carrying more medical debt in collections than in collections debt of all the other debt sources which included phone bills, credit cards, and utility bills.
- In the United States, 17.8 percent of people who had credit scores at the time of 2020 had medical debts in collections. Thirteen percent had accumulated debt in the previous year but were not in collections. Of those with health-related bills, the mean amount was $2,424 the year before. These figures are similar to prior Census Bureau estimates.
The study contains a number of warnings. For instance, Mahoney and his team note that the information is from TransUnion which is among the 3 national credit reporting agencies that might differ from those of the other agencies.
The research’s calculations don’t look at medical expenses that can be paid using credit cards or any other financial product.
This is because, if a person is paying a hospital bill using the use of a Visa or Mastercard and then goes into default on the card’s payment, the debt will show up as credit card credit in collections.
In addition, COVID-19-related debts, as well as medical debts that consumers have disputed, were also not included in Mahoney’s calculations.
Due to all of these reasons, and also because there’s a good chance of the possibility of unreported debts by credit bureaus, Mahoney says that the total medical debt figure is likely to be greater than $140 billion.
Yet, this new study sheds light on the magnitude of the nation’s medical debt crisis and provides an underlying basis on the basis of which Mahoney as well as other scholars will be able to develop new insights on the impact it has in real life.
In addition, Mahoney is currently studying a non-profit’s health debt relief program to evaluate the impact on families.
“Our first goal was to present some data that would help in understanding the medical debt issue in America and lay the foundation to follow-up,” he says.