Medical Debt Hurts the Credit Scores of 1 in 5 Americans

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One in five American consumers (43 million people) have negative marks on their credit reports because of overdue medical bills, according to a new report from the Consumer Financial Protection Bureau (CFPB). Medical debt also accounts for over half of the collection items (also known as overdue debt) on credit reports.

The average person with medical debt owes $1,776. Compared to the average student loan debt or credit card debt, this amount pales. So why don’t people just pay off these smaller bills? Obviously some can’t afford to. But a large share of people with medical debt have otherwise clean credit reports and routinely pay other bills on time. For many of them, medical bills are a cause of confusion and uncertainty about what they owe, to whom, when and/or for what, according to the CFPB report. This confusion is traced to a lack of price transparency and the complexities of the health insurance system. Compared to non-medical debt, medical debt is much more likely to be a source of complaints about the existence, amount or information pertaining to the debt. Put simply, a lot of people don’t pay their medical bills because they don’t even know what they’re being billed for.

Not surprisingly, people are more likely to accumulate large medical bills when they don’t have health insurance. In Texas, close to 6 million people are still uninsured. And over one million will remain that way because they are stuck in the Medicaid coverage gap, created by Rick Perry and soon to be perpetuated by Greg Abbott. But even people with health insurance still have medical bills to pay, and many do not pay them on time.

According to a Kaiser Family Foundation report, 36 percent of uninsured Texans – over one in three – have outstanding medical bills. The report also notes that even many Texans who do have health insurance still have unpaid medical bills. But the proportion is much lower (28 percent) for people who have employer-sponsored coverage, and lower yet for people with Medicaid (27 percent). The findings help substantiate what we already know to be true – people go into debt over medical bills less when they have health insurance.

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The impacts of medical debt go far beyond just bad credit reports. People with medical debt have actually been found to be over three times as likely as those without to avoid further medical treatment in order to avoid racking up more bills that they’re worried they won’t be able to pay for. Many poor adults in Texas “live with worry about their ability to afford costs in the future,” according to the Kaiser report. “The vast majority of uninsured Texas adults across all income groups reported that they lack confidence that they can afford either the cost of care for services they typically require or the cost of care should they face a major illness.” Medical debt is also the largest cause of personal bankruptcy in the U.S. And even just lower credit scores can make it harder to finance homes, cars or small businesses.

Medical debt also hurts more than just the people struggling to pay it off. In a recent year, Texas hospitals reported $2.1 billion in bad debt. “Although hospitals receive tax revenue, federal grants and donations to cover uncompensated care, the residual costs of caring for the state’s uninsured or underinsured still topped $1 billion in 2010,” according to the Texas Tribune. “Those additional costs lead to higher prices, and higher premiums for people who are insured.” When people can’t pay off their medical bills, everyone ends up paying the price.

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About Author

Emily Cadik

Emily is a Texas ex-pat and proud Longhorn living in Washington, DC, where she remains connected to the Lone Star State through her work on BOR and her enthusiasm for breakfast tacos. She works on affordable housing policy, and writes about health care, poverty and other social justice issues.

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