Medical debt carries less weight on credit reports. But it’s still a burden for consumers

The share of people with medical debt in collections that shows up in their credit reports has fallen in the past decade.

Yet unpaid balances due to health-care costs continue to burden individuals and families.

In 2013, 19.5% of Americans had medical debt in collections, while 10 years later, in 2023, that share fell to 5%, according to new research by the Urban Institute. The change is largely due to efforts by the major credit bureaus in 2022 and 2023 that removed paid medical debts from credit reports and delayed reporting of unpaid debts.

Yet the median medical debt in collections increased in that time, to $1,493 in 2023 from $842 in 2013, the Washington, D.C.-based think tank found.

“Consumers had previously had medical debt in collections on their files; since then, their credit scores have increased significantly,” said Breno Braga, principal research associate at the Urban Institute.

That can make it easier for debtors to access other types of credit, apply for jobs or rent housing, he said.

The states where consumers saw the biggest reductions in medical debt in collections from 2021 to 2023 were concentrated in the South, according to the Urban Institute. West Virginia saw its share of residents with medical debt in collections go from 25.8% to 6.7%; South Carolina went from 24.4% to 9.1%; Oklahoma went from 23.7% to 10.1%; Louisiana dropped from 21.3% to 8.1%; and Mississippi dropped from 18.5% to 6.1%.

Colorado had no medical debt in collections in 2023 after it banned credit bureaus from including medical debt on credit reports. Other states with the lowest levels of medical debt in collections in 2023 included Minnesota, with 0.7%; Hawaii, 1.2%; Vermont, 1.2%; and Washington, 1.4%, according to the Urban Institute.

The Consumer Financial Protection Bureau in June proposed banning medical bills from credit reports. The independent government agency estimates the rule would remove up to $49 billion in medical debts from credit reports.

“There’s an increasing recognition that most people have health insurance, but lots of people can’t afford health care,” said Matthew Rae, associate director of the Health Care Marketplace Program at KFF, a nonprofit organization that provides health policy research. “We’ve got to think about affordability differently.”

While efforts to erase medical debts from credit reports will help debtors, it isn’t the heart of the issue, according to Rae.

Recent KFF research found people who carry medical debt are more likely to be financially vulnerable in other ways compared with adults who do not carry those unpaid balances.

Of adults with medical debt, 72% reported carrying a credit card balance, 68% had no rainy-day fund, and 58% said they were just getting by financially, according to KFF’s analysis of 2021 data.

In comparison, just 37% of adults with no medical debt said they carry a credit card balance, while 37% had no rainy-day fund, and 28% said they were just getting by.

Adults with medical debt were also more likely to overdraw their checking accounts, to have been contacted by a debt collection agency, to use a pawn shop or to use a short-term payday loan one or more times, KFF’s research found.

“We find that people who have medical debt end up fighting all sorts of other debt,” Rae said.

However, it’s unclear where the problem starts — if people with, say, credit card debt are more likely to go into medical debt or vice versa, he said.

Medical debt is “absolutely” a cause of bankruptcy, Rae said, especially when the high debts are combined with an inability to work.

Certain states, cities and counties are canceling about $7 billion in medical debt through the American Rescue Plan Act, federal legislation that was enacted in 2021.

The move will cancel medical debt for up to 3 million Americans, the White House estimated in June.

“Today, I am issuing a call to states, cities, hospitals across our nation to join us in forgiving medical debt,” Vice President Kamala Harris said during a June press call.

The move is politically popular, according to a recent study from the University of Chicago Harris School of Public Policy and The Associated Press-NORC Center for Public Affairs Research.

More than half of adults — 51% — said it is extremely or very important for medical debt to be forgiven, versus just 39% who said the same for student loan debt, the groups’ May poll found.

For debtors who are currently struggling with balances, there are some steps they may take to try to get financial relief, according to Rae.

With network providers, you “absolutely should” try to negotiate and don’t take the first number, Rae said. There may be less room to reduce a bill if you’re on a high-deductible plan or have a high co-pay.

Prescriptions are also an area where patients tend to face burdensome costs, Rae said. It’s wise to shop around to find the best price a pharmacy or mail order plan can provide, he said.