Although medical debt has less impact on credit reports, it remains a significant burden for consumers.

• According to the Urban Institute, the percentage of individuals with medical debt that appears on their credit reports has decreased over the past ten years.
• Yet the median medical debt in collections increased in that time.
• Efforts to alleviate the burden of high healthcare costs, such as medical debt forgiveness, may be implemented.

The percentage of individuals with medical debt that appears on their credit reports has decreased over the past ten years.

Health care costs remain a financial burden for individuals and families with unpaid balances.

In 2013, 19.5% of Americans had medical debt in collections, while in 2023, that share fell to 5%, according to new research by the Urban Institute. The change is largely due to efforts by the major credit bureaus in 2022 and 2023 that removed paid medical debts from credit reports and delayed reporting of unpaid debts.

The median medical debt in collections rose from $842 in 2013 to $1,493 in 2023, according to a study by a Washington, D.C.-based think tank.

Since consumers previously had medical debt in collections, their credit scores have significantly increased, according to Breno Braga, principal research associate at the Urban Institute.

He stated that making it easier for debtors to access other types of credit, apply for jobs or rent housing could be achieved.

In 2021 to 2023, the states with the largest reductions in medical debt in collections were primarily located in the South, according to the Urban Institute. Specifically, West Virginia saw its percentage of residents with medical debt in collections decrease from 25.8% to 6.7%, South Carolina went from 24.4% to 9.1%, Oklahoma dropped from 23.7% to 10.1%, Louisiana moved from 21.3% to 8.1%, and Mississippi experienced a decrease from 18.5% to 6.1%.

In 2023, Colorado had no medical debt in collections due to its ban on credit bureaus reporting medical debt. Among other states with the lowest levels of medical debt in collections were Minnesota (0.7%), Hawaii (1.2%), Vermont (1.2%), and Washington (1.4%), according to the Urban Institute.

'Lots of people can't afford health care'

In June, the Consumer Financial Protection Bureau proposed a rule to prohibit medical bills from being included in credit reports. The agency estimates that this rule could eliminate as much as $49 billion in medical debt from credit reports.

"Matthew Rae, associate director of the Health Care Marketplace Program at KFF, stated that although there is growing acknowledgement that many individuals have health insurance, a significant number of people cannot afford healthcare. He emphasized the need to reconsider affordability."

According to Rae, although making an effort to remove medical debts from credit reports can aid debtors, it doesn't address the root problem.

Individuals with medical debt are more likely to be financially vulnerable in other areas compared to those without such debts, according to recent KFF research.

According to KFF's analysis of 2021 data, 72% of adults with medical debt carried a credit card balance, 68% had no rainy-day fund, and 58% said they were just getting by financially.

While 37% of adults with no medical debt carry a credit card balance, 37% have no rainy-day fund and 28% say they are just getting by.

KFF's research found that adults with medical debt were more likely to overdraw their checking accounts, be contacted by a debt collection agency, use a pawn shop, or take out a short-term payday loan one or more times.

Rae stated that individuals with medical debt often struggle with managing other types of debt.

He stated that it is unclear whether individuals with credit card debt are more likely to accrue medical debt or if those with medical debt are more likely to have credit card debt.

Rae stated that medical debt is a significant cause of bankruptcy, particularly when it is combined with an inability to work.

About $7 billion in medical debt to be canceled

The American Rescue Plan Act, a federal legislation passed in 2021, is being used by certain states, cities, and counties to cancel approximately $7 billion in medical debt.

In June, the White House estimated that up to 3 million Americans would have their medical debt cancelled due to a planned move.

During a June press call, Vice President Kamala Harris urged states, cities, and hospitals to join in forgiving medical debt.

A recent study from the University of Chicago Harris School of Public Policy and The Associated Press-NORC Center for Public Affairs Research shows that the move is politically popular.

A May poll found that more than half of adults, or 51%, believe that medical debt should be forgiven, compared to only 39% who feel the same about student loan debt.

Rae suggests some steps for debtors who are currently struggling with balances to try to get financial relief.

It's advisable to negotiate with network providers and not accept the initial offer, as there may be less flexibility to lower your bill if you have a high deductible plan or co-pay.

Rae advised that patients often face high costs when it comes to prescriptions, and it's beneficial to compare prices among pharmacies or mail order plans to find the best deal.