Study finds that canceling unpaid medical bills does not improve credit or health

Four out of 10 Americans have some form of medical debt, a problem unique to the United States even among wealthy countries. Countries do not guarantee health insurance to everyone, and even for those who do have insurance, costs are much higher on average than patients in other developed countries. This is a fundamental flaw in the design of the US healthcare system.

Those debts weigh heavily on those who carry them. Research shows that people who incur large medical bills (after a cancer diagnosis, for example) report cutting back on everyday expenses, depleting their savings, and even downsizing their homes. Medical debt is associated with poorer general health, cancer, heart disease, and higher overall mortality rates. People get sick because they can't afford health care.

In the absence of politically difficult health care reforms, activists and some state and local governments have launched medical debt relief programs to buy the debts of people in dire financial straits far below face value and provide patients with financial aid. Debts are canceled free of charge. .

But a new study on medical debt relief by a group of top economists casts doubt on its value. Participants who had their debt canceled did not significantly improve their mental and physical health or access to credit after debt forgiveness. There was even evidence that some people became more depressed.

“It would be great if we could improve people's mental health, make household finances easier, and make people go to the doctor more often by buying debt for less than a penny on the dollar,” said Francis Wong of the University of Munich. Stated. an economist who co-authored the study told me. “But it didn't work out.”

This discovery surprised researchers. While it may be premature to abandon medical debt relief based on one study, this study does highlight the limitations of debt relief and how limited government and philanthropic resources can be used to alleviate high medical costs. This raises important questions about how to utilize it.

One of the takeaways from this paper may be that bailing out debt long after it has been incurred may ultimately be a band-aid for a structural problem in American health care. Many people with medical debt also struggle with other financial problems that are exacerbated by medical bills, and are not easily reversed by eliminating hospital bills. It may be more effective to prevent medical debt in the first place.

“The bottom line for me is that we really need to address the root causes that caused all of these problems in the first place, causing economic hardship and poor mental health,” Wong said. “It's a question of addressing the holes in America's health care system.”

Medical debt relief didn't do much to improve people's finances

The research team, which included Wong, Raymond Kruder of Harvard University, Neil Mahoney of Stanford University, and Wesley Yin of UCLA, has collected a total of $169 million through an organization called RIP Medical Debt (recently renamed RIP Medical Debt). was asked to study a group of 83,400 people who received dollar medical debt relief. ). In this study, two groups of patients were analyzed. One held the debt for an average of seven years, the other for just over a year. The experiment used survey and financial data to follow most patients for about a year after receiving debt forgiveness.

The researchers found that the relief had a negligible impact on participants' access to credit and other measures of financial well-being compared to patients whose debts were not canceled. Credit scores rose by just 3.6 points on average, but among those whose only debt was medical debt, it rose even more significantly by 13.4 points. The average increase in credit limit was only $342.

The study found that participants who had debt relief were actually less likely to pay for future medical expenses. As a result, there was no improvement in objective and subjective measures of financial hardship.

One reason may be that participants carried a large amount of non-medical debt, even though they had an average of $2,167 in debt forgiveness. The group's average debt was $28,000, including credit card balances and car loans. Bills averaging $4,000 have already been recovered.

“What struck me most was how widespread financial hardship people with medical debt experience,” Kluender said. “The debt relief we were able to implement through experimentation was insufficient to address their economic poverty.” People with medical debt are pestered by collectors and borrowed more to pay their bills. They are often forced to cut back on spending on necessities such as food and rent.

People did not report feeling happier or healthier after debt forgiveness

The study also found that measures of depression, stress, anxiety, subjective well-being, and general health remained largely unchanged after debt cancellation.

There was one particularly important finding. Before starting the experiment, the authors asked a panel of 45 experts what they expected the study to find. Panelists expected an average decrease of 7 percentage points in the number of patients reporting moderate or higher depression. Instead, the study showed him 3.2 percentage points. increase Number of patients who reported being depressed. This was on top of the 45% of participants who reported having at least moderate depression before the experiment began.

The worst effects on mental health were seen in the 25% of participants who had the most medical debt, with depression at 12.4% after debt forgiveness, along with “worsening of anxiety, stress, general health, and subjective well-being” % increase.

“This means that rates of poor mental health are alarmingly high,” Wong said.

How could that be? One possibility is that relief came too late to undo the severe psychological burden of being in debt for months or years. Such patients “are already traumatized by the retrieval process,” Mahoney told me. We will continue to struggle with non-medical debt.

“Such people are being chased by debt collectors on a weekly basis. Not just medical debt collectors like the ones we study, but all kinds of debt collectors,” Wong said. . Medical debt relief “does nothing to alleviate any other symptoms, let alone whatever health condition caused you to incur medical debt in the first place.”

The researchers identified another plausible theory through a side experiment included in the study. The experiment tested patients' reactions based on how they were informed about debt forgiveness, either by phone or letter. Among those who received the news directly by phone, the negative impact on mental health was greater.

Previous research has found that Americans tend to feel shame and stigma when they receive help from charities or the government to pay their bills. The study notes that participants were not requesting debt relief, but rather had their debts purchased and erased by RIP Medical Debt without their prior knowledge (this is often how medical debt relief programs work). The very act of filling out the research questionnaire may have influenced how respondents perceived their situation.

“We're reminding people of this unpleasant experience they had,” Kluender told me. “Perhaps they had an unpleasant negotiation with their insurance company, or perhaps they feel great guilt or shame about not being able to pay their bills.”

What should I do with this information?

This disappointing finding is especially surprising given that studies of relief programs for other types of debt, such as credit card debt and student loan debt, have found improvements in financial health and employment prospects. Medical debt, like other types of debt, is associated with poor health and poor financial standing.

However, medical debt has some unique characteristics. Repayment rates are much lower than student loans or home loans. When medical bills are collected, they are often resolved in negotiated settlements, which can result in payments that are much lower than what patients were originally owed.

As a result, study participants who had been in debt for at least a year may have already unknowingly canceled their medical debt by the time relief was applied, the authors said. This limits the impact they may feel when wiped out.

Some experts not involved in the study say that previous research on medical debt relief has found significant benefits to people's credit scores and access to credit, and based on their findings, We believe our findings may underestimate the benefits of medical debt relief, particularly for people's finances.

However, the impact on credit scores is becoming increasingly controversial. At the request of the Biden administration, credit agencies agreed not to report most medical debt on people's credit reports, a step taken in the midst of this experiment. (This study is based on some people whose debts were forgiven before its publication.)

Amy Finkelstein, a leading researcher on health care costs at the Massachusetts Institute of Technology, whose study was sponsored by the nonprofit J-PAL North America, said she was shocked by the results. But he said he was grateful for the results. One of the difficult tasks of policymaking is to calmly assess the consequences of what you are doing.

“Yes, it's unfortunate. But put another way, this was true whether we did the research or not,” Finkelstein told me. “So it's good to know so you can learn from it and move on.”

Everyone I spoke to agreed on one point. That means preventing people from taking on medical debt is likely to be more effective at improving people's finances and health than reducing debt after the fact. One-time debt relief may not make health care easier or less stressful in the future, but providing people with health insurance that eliminates the risk of debt You can get the effect.

That hypothesis is supported by existing evidence. The Oregon Health Insurance Experiment, a totem of medical research, found that depression decreased by 9% in low-income adults who received Medicaid. They were also less likely to go into debt for medical expenses, and less likely to take out a loan to cover the balance of a medical bill or skip paying for other necessities.

Experts I spoke with said stronger policies, including more generous insurance benefits for people who already have insurance, could reduce medical debt and lead to better health and economic outcomes. cited intervention.

Covering the 26 million Americans who remain uninsured would be another step. Most states in the Deep South still have not expanded Medicaid under the Affordable Care Act (ACA), leaving millions of low-income people without insurance. Other proposals, such as expanding public insurance options, are also gaining support among Democrats.

“As consumer advocates, the best solution would be single-payer Medicare for all,” said Chi Chi Wu, an attorney at the National Consumer Law Center.

However, a large-scale overhaul is easier said than done. The history of health care reform in the United States is one of a country that is moving step by step toward universal health coverage. Medicare and Medicaid were passed in the 1960s, and the ACA didn't become a reality until 2010. Our country's Byzantine insurance system with weak cost controls still exists, and large-scale insurance systems have been introduced. The medical industry invested in maintaining the status quo.

In the meantime, experts said, policymakers may focus on making sure more people have access to hospital financial assistance programs. Many patients are eligible for assistance that can significantly reduce their debt, but they often don't know it's available. In 2022, The New York Times reported that some hospitals are making it extremely difficult for eligible patients to learn about and take advantage of subsidy programs, while aggressively asking patients who would otherwise be eligible to receive them to pay. It was reported that

The long-term universal health insurance project continues. Although the results may be disappointing, this debt relief study may prompt new thinking about how to better help people.