Does America Really Have a ‘Medical Debt Crisis?’
Mark Howell / Edmund Haislmaier /
Sen. Bernie Sanders, I-Vt., made a startling claim in his opening statement as the Senate Health Committee held a hearing on “the medical debt crisis in America.”
Sanders said that “over 66% of all personal bankruptcies in this country, some 530,000 per year, are connected to unpaid medical bills.”
That certainly sounds like a crisis, but is his statement accurate? Well, not quite.
Medical debt is indeed a problem for some. However, politicians hyping medical debt into a “crisis” aren’t only being misleading, they’re pushing unnecessarily radical changes when reasonable reforms would do the job.
To start with, Sanders’ statistics were derived using a flawed methodology that was shown to be inaccurate 20 years ago. Other scholars, using the same data, found that “medical bills are a contributing factor in just 17% of personal bankruptcies.”
What’s more, declining medical debt has been a trend over the past decade. The average medical debt in collections decreased from $750 in 2009 to $429 in 2020 (the latest year for which data is available).
More recently, a 2022 report from the Consumer Financial Protection Bureau found that half of all medical debt collections in 2020 were for $300 or less and two-thirds were for under $500.
Such figures indicate that, although significant medical debt may be a problem for some Americans, it’s not widespread, it’s not growing, it doesn’t constitute a crisis, and it doesn’t require making radical changes to the health care system.
Rather, as some senators on the Health Committee and some hearing witnesses pointed out in the July 11 hearing, medical debt is a byproduct of high prices for medical care.
What makes the problem worse is that a patient rarely can get medical prices in advance and his insurer doesn’t know what a doctor or hospital charges other insurers for the same services.
So it’s difficult for both patients and their insurers to compare prices and shop for lower-priced medical services.
A simple way to put downward pressure on health care prices is to increase price transparency, such as by requiring hospitals to publish their cash prices for the services they provide.
The good news is that the Trump administration initiated price transparency rules for hospitals, the Biden administration maintained those rules, and the House of Representatives in December approved a bipartisan bill to extend and expand price transparency.
In addition to price transparency, Congress should reform government programs and policies that ostensibly exist to subsidize the treatment of patients who can’t afford the cost of their care.
For example, nonprofit hospitals received $28 billion in tax exemptions in 2020 to provide charity care and other “community benefits.” In addition to those tax breaks, federal and state governments distribute $42 billion a year in direct funding to hospitals and clinics to provide charity care to low-income patients.
Yet, it is unclear what hospitals are doing with all that money or why low-income patients still incur medical debts given the large subsidies hospitals receive on their behalf.
In sum, while medical debt is a significant burden for some Americans, it doesn’t constitute a crisis. The real crisis lies in escalating health care costs, driven in part by government incentives and a lack of accountability and transparency.
Rather than push for more government involvement, Congress should pursue targeted reforms that increase price and quality competition among doctors and hospitals. Sanders and other lawmakers also should redirect existing subsidies to the patients who most need help paying for their care.