Impacts of Medical Debt - CCLP (2024)

Apr 6, 2023

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The previous posts in this series discussed how credit reporting works and why CCLP believes medical debt should not be included on credit reports. However, medical debt impacts several other areas in a person’s life, including household finances, physical and mental health, and access to housing. Take Nobel Prize-winning physicist, Leon Lederman, for example, who sold his Nobel Prize medal for $765,000 to pay medical bills. Like Mr. Lederman, every day Americans are making extraordinary sacrifices to pay for medical care.

Personal Finances

Medical debt can have devastating impacts on a household’s financial health. The effects of medical debt on household finances can often mean forgoing basic necessities like, “cutting spending on food, clothing, and other household items, spending down their savings to pay for medical bills, borrowing money from friends or family members, or taking on additional debts.”

Many consumers choose to pay off medical debt using personal loans or credit cards. One study found that 1 in 3 credit card holders are in credit card debt due to medical bills, whom felt “they had no other option” to be able to afford their medical bills. Some health care providers have even begun offering “medical credit cards” –cards marketed to patients as a way of paying medical and dental bills, many of which have deceptive interest rates that can hurt consumers. Medical credit lines are a multi-billion dollar industry, and the interest rates on these cards often exceed a traditional bank loan. These lines of credit can compound into greater strains on a household’s finances.

Another devastating outcome from medical debt is bankruptcy. “Medical bankruptcy” is not a legal term or a specific type of bankruptcy, however medical debt is often included as part of bankruptcy claims. One study found that 66.5% of people who file for bankruptcy cite either medical expenses or illness-related work loss as at least one reason for their bankruptcy. This same study estimates there are 530,000 medical bankruptcies in the US annually. Bankruptcy information can stay on a credit report for seven to ten years and can dramatically lower a credit score by up to 240 points.

The financial burden of medical debt is a major stressor which can compound with health conditions into serious implications for physical and mental health.

Physical and Mental Health

Personal debt and financial hardship are strongly correlated with poor mental health, which can exacerbate adverse effects of other health conditions. A Consumer Financial Protection Bureau (CFPB) study found that medical debt worsens mental health conditions and is strongly correlated with increased chance of suicide. Many people who carry medical debt describe feelings of anguish and have higher rates of anxiety and depression. Medical studies have shown that poor mental health is a risk factor for chronic health conditions, and vice versa.

Medical debt often creates barriers to accessing necessary healthcare. Many people with medical debt report skipping essential medical services and appointments out of fear of going further into debt. For people with chronic health and disabling conditions, skipping or spacing out certain medications can have life-threatening results, including the inability to pay for insulin copays and tragically losing their life as a result. Some people are even denied care due to their medical debt.For the children who live in these households, the effects of medical debt ripple into their lives and health.

A Journal of Clinical Pediatrics study found that 1 in 5 children “live in households that struggle with medical debt” which “lead[s] to adverse health outcomes for children” and is a strong predictor of physical and mental health outcomes for children. Furthermore, medical debt is associated with higher rates of infant and maternal mortality, and instances of “Adverse Childhood Experiences.” Furthermore, in households with children, medical debt significantly increases rates of food insecurity, where other types of debts were not found to be correlated. Food insecurity has been linked with “health and developmental risks in young children.” The downstream effects of medical debt harm on not just the adults who incur it, but also those who depend on them.

Housing

Housing instability as a result of medical debt is common. According to one study, 27% of people with medical debt“experienced housing related problems.” Housing problems related to medical debt include: “missed mortgage or rent payments, property tax liens, difficulty qualifying for loans, eviction, disruptive moves to less expensive housing, rental applications denied and in extreme circ*mstances, homelessness.” Another survey found that 70% of people cited medical reasons were at least one cause leading to their home foreclosure. In fact, a study on the relationship between medical debt and homelessness found that having even small amounts of medical debt increased the amount of time a person experiences homelessness by two years.

The impacts described in this post only scratch the surface of the devastation and hardship medical debt has on peoples’ lives. This is a massive systemic issue that needs to be addressed through policy. One of CCLP’s priority bills, House Bill 23-1126 is one piece of the puzzle. HB23-1126 would ensure medical debt information not be included on credit reports or factored into credit scores in Colorado. We shouldn’t add to the suffering of people by including medical debt information on people’s credit scores. While HB23-1126 can’t alleviate all the hardships caused by medical debt, it can provide some much-needed relief for some of the burden and stress.

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