Past-due medical debt can be more than just an immediate problem for Americans’ budgets. It can also show up on credit reports and lower credit scores, making it harder and more expensive to borrow for a new home or start a business. Americans with debt in collections may also face difficulty finding a job or rental housing because the debt appears on their credit report.
A proposal from Democratic presidential candidate Bernie Sanders aims to remove that debt. Through analysis of a random sample of credit file holders, we find this plan would forgive the debt of 42.7 million Americans with a credit file who had medical debt in collections in 2018 (about 16.5 percent of all people with a credit file) and 13 million Americans between 18 and 35 (about 18.9 percent of young adults with a credit file).
Young adults are more likely to have past-due medical debt and more medical debt in collections. Debt forgiveness plans like Sanders’s could help these young people avoid the negative consequences of debt and reach more stable financial footing.
What would Sanders’s plan do?
The plan would “negotiate and pay off past-due medical bills in collections that have been reported to credit agencies.” It would also remove debt from credit reports, replace private credit bureaus with a public credit registry, and end credit checks for other nonlending practices such as employment, rental housing, and insurance. This aims to limit the negative effects of debt in collections on other aspects of financial well-being.
Lawmakers’ and presidential candidates’ proposed health care reforms aim to limit future medical debt burdens by expanding access to insurance and lowering costs, but Sanders is the only presidential candidate to release a plan explicitly addressing medical debt people already hold.
How does medical debt affect young adults?
The typical (or median) amount of medical debt in collections for young adults with medical debt in collections is $868—yet the typical amount for all adults with medical debt in collections is of $694, according to our analysis of credit bureau data.
These amounts can make a big difference for low-income families’ economic stability. Urban research shows that families with a savings cushion of as little as $250 to $749 are less likely to be evicted, miss a housing or utility payment, or receive public benefits after a job loss, health issue, or large income drop.
Why do young adults have more medical debt in collections than older adults?
Even though health care use and spending increases with age, medical debt collections decline as people get older. One big reason: young adults are less likely than other adults to have health insurance, and adults with health insurance are less likely to have past-due medical debt. Older adults have greater protection against medical debt with the help of Medicare, and baby boomers have lower uninsurance rates than millennials or Gen Xers.
The Affordable Care Act enabled adults to stay on their parents’ health plans until they turned 26, which increased the number of young adults with health insurance. But having health insurance doesn’t guarantee people won’t have medical debt. Deductibles, copayments, coinsurance, and costs from receiving services not covered by insurance can result in medical debt, especially for people who have less wealth. Younger Americans have accumulated less wealth than people had at their age in the 1980s.
What are the equity concerns of medical debt in collections?
Medical debt doesn’t affect communities equally. Southern states and communities of color tend to have higher shares of people with debt in collections, higher amounts in collections, and higher shares of people without health insurance. Racial inequalities in income and wealth—which largely result from historical and current policies and practices rooted in structural racism—likely play a role in these higher rates of uninsurance and past-due medical debt.
Forgiving past-due medical debt would have greater benefits for these communities who have shouldered a disproportionately large debt burden.
What are potential unintended consequences of the plan?
Paying off all medical debt would be a large transfer to debt collectors, rather than to the people who owe debt themselves. This type of debt forgiveness could also miss people who borrowed or used credit cards to pay their medical bills and now face other types of debt as a result. And if employers and landlords are prohibited from using credit checks to assess job and rental applicants, they might turn to other screening mechanisms—the effects of which will need to be carefully assessed.
But eliminating medical debt, in addition to expanding access to quality health insurance and supporting wealth building policies, could help millions of young Americans improve their financial picture.