Millions Drowning in a Tsunami of Medical Debt

Twice as many Americans as previously reported have been turned over to collection agencies because of unpaid medical bills.

James R. Hood
James R. Hood

There's a lot of public angst about student loan debt. Now you can add unpaid medical bills, which are about twice as high as previously thought, with an estimated 18 percent of Americans in default on at least some of their medical debt.

The student debt burden now stands at about $1.57 trillion but while that's a lot of money, many formerly indebted students are now indebted working professionals and are servicing their debt. Paying it off, in other words.

But millions of Americans, especially those in states without the Medicaid extension offered under Obamacare, have accumulated huge medical bills that they have little hope of paying off. Collection agencies now hold about $140 billion in unpaid medical debt, nearly twice as much as the $81 billion found in a 2016 study, according to a study published in JAMA.

Keep in mind that $140 billion figure represents only medical bills that have been turned over to collection agencies. It doesn't include accounts that are past-due but not yet in collections. Nor does it include bills that have been put on credit cards or lawsuits filed by hospitals against patients who can't pay their bills.

None of these dismal statistics include the coronavirus pandemic, so the situation is undoubtedly even worse.

Medical debt higher in the South

Perhaps not surprisingly, the paper found that conditions were worse in states without the Medicaid expansion, many of them in the South.

Medical debt was highest among individuals who lived in the South and in zip codes in the lowest income deciles and became more concentrated in lower-income communities in states that did not expand Medicaid.
-- Medical Debt in the US, 2009-2020, JAMA

Consumers in those states already had higher average medical debt before Obamacare went into effect. They now owe an average of $375 more than those in states that took advantage of the Obamacare Medicaid extension.

While having a huge pile of unpaid medical bills is a nightmare, it's a problem that often gets shunted aside as struggling consumers try to pay bills that have more urgent consequences if left unpaid – rent, utility bills and car payments, just to name a few.

Congress has been arguing for years about healthcare but little has been accomplished since the passage of Obamacare, more properly known as the Affordable Care Act.

Some Democratic senators are taking up the issue again. Sen. Ralph Warnock of Wisconsin is among the sponsors of a bill that would enable the federal government to extend Medicaid in states that have refused to do so themselves, calling that "single most effective solution" to the problem, according to New York Times report.

Sen. Bernie Sanders (I-Vt.) has called for eliminating medical debt entirely and moving to a single-payer health system similar to Medicare.

"As we have seen with the COVID-19 pandemic, in times of crisis, the last thing people should have to worry about is whether they will be able to afford medical care. Medicare for All would provide peace of mind to every American," Sanders says in a position paper.

Bankruptcy provides an out

A solution for individuals facing a huge pile of medical bills is bankruptcy, a topic that sometimes seems as controversial as "socialized medicine." But bankruptcy was created to throw a lifeline to citizens drowning in debt. It doesn't always wipe out all debts but can often restructure debt, making it possible to reduce payments or stretch them out.

"If your bills have grown to levels your income simply can’t handle, having your debts discharged through bankruptcy is a safe, legal and practical choice," advises Debt.org, a Florida website that refers consumers to debt counselors.

Like it or not, unpaid medical bills are the No. 1 reason people file for bankruptcy protection each year. An average of more than 640,000 people file bankruptcy petitions each year because of medical debt, according to several studies.

The coronavirus pandemic is expected to make matters worse. Not only have millions of Americans run up bill medical bills being treated for Covid-19 but many have also lost their jobs.

“I am gearing up for having a tsunami of new cases,” says Jenny Doling, a bankruptcy attorney in Palm Desert, California, who serves on the American Bankruptcy Institute’s Chapter 13 Advisory Committee, in a recent Nerdwallet report. “I think there will be a whole lot more people filing than what anyone's ever seen before.”

You can learn more about bankruptcy and find a directory of bankruptcy attorneys at  the National Association of Consumer Bankruptcy Attorneys website.


HealthMoney

James R. Hood

Jim is a publishing entrepreneur and journalist. He founded ConsumerAffairs in 1998 and earlier was the founder of Zapnews, after holding executive posts at the Associated Press.