Unpaid medical bills are among the largest contributors to personal debt in the United States. According to survey data, half of the country is in medical debt, and a sample of credit reports suggests that about a fifth of the country is in collections for medical debt. It is a leading cause of consumer bankruptcy. New evidence indicates that medical debt disproportionately affects people of color and individuals with lower incomes, underscoring the need for more comprehensive consumer protections.

Aggressive Collections Practices Have Persisted Throughout the Pandemic – An Update

In September 2020, we reported that hospital systems have been engaging in aggressive medical debt collections practices like wage garnishment and putting liens on patients’ homes, even during the COVID-19 pandemic. New evidence indicates that these practices have continued unabated, according to an analysis of complaint data from the Consumer Financial Protection Bureau. In March 2021, the number of complaints filed with the Bureau reached the highest monthly level since 2018. An investigation into medical debt practices of New York’s non-profit hospitals between March and November of 2020 by the Community Service Society of New York found that 55 hospitals had sued about 4,000 patients for medical debt in that period. Hospitals had engaged in these practices despite receiving millions of dollars in pandemic relief to offset pandemic-related losses.

Vulnerable Populations Are Most Affected by Medical Debt

New studies shed light on how medical debt disproportionately affects the country’s most vulnerable populations. In 2018, the U.S. Census Bureau added a one-time survey question asking respondents whether they had medical bills they were unable to pay in full. The Bureau recently released its analysis of this data, which shows significant racial, health, and socioeconomic disparities in who holds the most medical debt in this country.

The data show that 27.9 percent of Black households had medical debt compared to 17.2 percent of non-Hispanic white households, and that 21.7 percent of households with at least one member of Hispanic origin held medical debt compared to 18.6 percent of households without any members of Hispanic origin. The Census Bureau data further illustrate that medical debt was more prevalent among households with at least one member in fair or poor health (31 percent) and households where at least one member has a disability (26.5 percent) compared to families without any members in fair or poor health or with disabilities (14.4 percent and 14.4 percent, respectively). Medical debt was also more common for households with children, and families with a younger head of household, suggesting a disproportionate prevalence of medical debt among young families.

A recently published study of Wisconsin court records between 2001 and 2018 supplements the Census Bureau’s data by demonstrating that medical debt lawsuits before the pandemic were disproportionately directed towards Black patients and patients living in poorer and less densely populated counties. The study also found that the number of medical debt lawsuits in general increased by a shocking 37 percent between 2001 and 2018, with the majority of that increase occurring between 2006 and 2009.

Hospitals have pointed to rising deductibles as a source of patient debt, asserting that lawsuits are necessary to keep health systems afloat, and that such suits are only brought if the patient has the ability to pay but chooses not to. But patient and consumer advocates have argued that health care providers might be relying on inaccurate assumptions about patients’ ability to pay when they bring lawsuits, and many fail to refer patients to financial assistance programs even when they are eligible. Results from the Wisconsin study beg the question of whether implicit bias might play a role in how hospitals determine whether a patient is unwilling versus unable to pay their medical bills.

Policies Targeted Towards Preventing Medical Debt Only Go So Far

Policymakers have proffered several solutions to reduce medical debt, but the shortcomings of these approaches highlight the need for additional protections.

Expanding Health Insurance

Health insurance coverage can be an important tool for preventing medical debt, but not everyone has equal access to adequate coverage. A study of consumer credit reports between 2009 and 2020 showed that medical debt became more concentrated in lower-income communities in states that did not expand Medicaid. For those without access to health insurance coverage, the magnitude of medical debt can be crushing—about 9 percent of households with at least one uninsured person experience medical debt that exceeds 20 percent of their household income. However, even having health insurance cannot protect some households against high levels of medical debt, as roughly 3 percent of households with health insurance coverage also experience medical debt that exceeds 20 percent of their household income. This is borne out in data showing racial disparities as well: while evidence shows that communities of color are more likely to be uninsured, an analysis by the Brookings found that Black households with health insurance were as likely to hold medical debt as non-Black households without insurance, suggesting that racial disparities in medical debt extend beyond insurance coverage status.

Providing Patients with Financial Assistance

State laws requiring hospitals to provide free care for low-income populations can also help patients avoid medical debt. Maryland requires hospitals to provide free care to those with incomes under 200 percent of the federal poverty level, but a recent state report found that hospitals had designated about 60 percent of unpaid hospital bills attributable to these households as bad debt instead of as free care, meaning hospitals in Maryland have attempted to collect from a “sizable number of patients” who likely qualified for free care under state law.

One of the main problems with laws requiring free care or financial assistance is that hospitals are not required to screen patients to determine their need. Patients are burdened with finding out about these opportunities and then applying for them. A poll by a Maryland consumer advocacy group found that just under half of African-American respondents knew that hospitals provided free or low-cost care to low-income patients compared to the 79 percent of white respondents who said they were aware of these financial assistance programs. This brings up the issue of whether hospitals are making financial assistance and counseling equally available to all patients, and if implicit bias might be playing a role in hospital staff making financial assistance programs more available to white communities than communities of color.

State Solutions Could Offer a Path Forward Despite Industry Resistance

Consumer advocacy organizations have repeatedly called for states to enact comprehensive patient protections against aggressive collections practices; the hospital industry has opposed state legislation despite these practices bringing in very little revenue. An investigative report by the Community Services Society of New York found that non-profit hospitals in the state sue patients for relatively small sums: among roughly 30,000 collection actions brought between 2015 and 2019, hospitals sought a median amount of $1,900. An analysis of the Johns Hopkins Hospital’s medical debt collections practices from 2009 to 2018 confirms these findings by showing that the hospital was suing patients to collect a median of $1,438 in medical debt. Further, by some estimates, the money recouped by hospitals through these aggressive practices makes up less than 1 percent of operating revenue. At the same time, non-profit hospitals’ tax exempt status relieves them of federal and state taxes that far exceed their expenditures on financial assistance programs.

States have the ability to use all this evidence to enact laws that better protect their most vulnerable populations. For example, Maryland enacted a law in 2021 prohibiting hospitals from placing liens on patients’ homes or garnishing wages of those who qualify for free or reduced-cost care. The law will also require hospitals to report medical debt lawsuits they are pursuing to the state, including information on the race and ethnicity of debtors. Colorado also enacted a law last year requiring hospitals to screen every uninsured patient for eligibility for public insurance programs and discounted care using a state-created uniform application. When the law goes into effect later this year, patients will also be able to appeal a decision finding them ineligible for discounted care. Beginning next year, hospitals will be required to report to the state information on race, ethnicity, age, and primary language spoken by patients. This reporting requirement may help identify troubling patterns so policymakers can act to reduce disparities.

In states without laws protecting consumers from hospitals’ aggressive debt collection practices, patients’ best bet right now seems to be to wait for media coverage to shine a spotlight on their dire situation and to hope that it will spur a change of heart. People in medical debt deserve a better chance to have some financial security.