Impending federal policy changes to insurance coverage risks exacerbating the national medical debt crisis. In a new era of federalism in health policy decision-making, state governments should urgently consider opportunities to legislate medical debt reform before health care costs grow out of reach for millions of American households.
Medical debt is already a national crisis. Despite more than 90% of Americans having health insurance coverage, prior research suggests that approximately 10% of U.S. adults report medical debt each year with a mean medical debt of nearly $22,000. Nearly 5% of Americans have medical debt in collections, which can place people at risk for aggressive actions by collections agencies, such as lawsuits, asset seizure, and wage garnishments.
As physicians, we are especially concerned that more of our patients will start facing greater amounts of medical debt and its associated consequences. Our research has shown that even in Massachusetts – where insurance coverage rates are higher than many other states – cancer patients are at risk for both medical and non-medical debt in collections that last for many years after they are first diagnosed with cancer. These medical risks are also not completely mitigated by the Massachusetts Health Safety Net, which helps reimburse hospitals for uncompensated care and is running a funding shortfall that is expected to exceed $250 million in fiscal year 2025. The passage of the federal budget bill earlier this year includes approximately $860 billion of cuts to Medicaid over the next 10 years and additional cuts to the Affordable Care Act insurance marketplace that will ostensibly worsen health care coverage across the country, especially for low- and middle-income residents. Since research has shown that losing insurance coverage increases the risk of acquiring medical debt by more than 60%, we expect that widespread coverage losses will lead to millions more Americans incurring higher amounts of medical debt at a time when state social safety nets will also be strained to provide adequate relief.
Medical debt can also lead to secondary financial consequences for people. When people cannot pay medical bills, this medical debt can be sold by health care professionals, hospitals, and health care systems to third-party collection agencies and be reported on credit reports. This can lead to decreases in credit scores, which are not just a marker of socioeconomic well-being but can also be used to decide employment, housing, and the ability to access forms of credit, such as car loans, student loans, and credit cards. Federal regulations passed by the Consumer Financial Protection Bureau within the last year would have removed billions of dollars in medical bills from the credit reports of millions of Americans. However, the Bureau recently reversed course and joined trade groups in successfully asking a federal court to strike down this regulation. This means that Americans in the coming year are at risk for both more medical debt not just due to insurance coverage losses, but also because of deregulation on credit reporting.
Some states have taken steps toward medical debt reform. Already, 13 states have passed legislation that prohibits medical debt from being reported to credit bureaus. Physicians seeking details on their state’s medical debt policies can refer to the Commonwealth Fund’s comprehensive report of state-based medical debt protections including standards on financial assistance, community benefits, and hospital payment plans, as well as regulations on billing and collections practices and medical debt lawsuits. Some states, such as Minnesota, have also instituted patient protections by ensuring that medically necessary care cannot be denied to patients who have unpaid debt. In 2024, Arizona took the unprecedented step of partnering with the non-profit Undue Medical Debt to leverage funds from the American Rescue Plan Act to purchase and forgive billions of medical debt for up to 1 million of the state’s residents. Other states, such as Massachusetts and New York, have introduced but not yet passed state legislation on medical debt reform, and many other states have not yet even drafted legislation.
Physicians can take several actions toward reduced medical debt and related policy reform. At the point of care, clinicians can partner with patients who express cost concerns and strategize opportunities to reduce out-of-pocket cost burdens, such as using medication alternatives that offer similar benefit for lower costs, scheduling non-urgent procedures and surgeries based on insurance plan design or whether patients have met their annual deductible, and by connecting patients to financial assistance programs. Physicians who wish to advocate for medical debt reform can collaborate with local policy and advocacy organizations, write academic and editorial pieces to raise awareness of medical debt experienced by their patients, and testify in municipal and state legislative and regulatory sessions focused on health care costs.
State legislatures should urgently consider medical debt reform opportunities including, but not limited to, credit bureau reporting. Legislatures have an imperative to act now to restrict collections agencies from taking extraordinary actions to collect on medical debt, including prohibitions on arrests and foreclosures, protecting certain assets from seizures, and limiting wage garnishments and interest rates on judgements. Such reforms could reduce the pressure on patients to take extraordinary measures to pay medical debt by using credit cards, borrowing from payday lenders, or even re-mortgaging their homes. In the absence of federal protections on medical debt reporting, state governments need to protect residents with medical debt from experiencing decreases in credit scores that can lead to adverse effects on employment, housing, and financial health.
To be clear, we don’t think that passing a nationwide patchwork state-based legislation will be sufficient to completely fix the medical debt crisis. More than half of all states have health care spending per capita that exceeds $10,000, and unless enhanced premium tax credits for Affordable Care Act marketplace enrollees are renewed, millions of Americans may soon be paying as much as 10% of their annual household income in insurance premiums. Out-of-pocket costs have been rising steadily for at least the last decade, and millions of Americans will soon pay more than ever in deductibles, co-pays, and coinsurance. Meanwhile, wage growth continues to lag behind growth in health care spending and remains relatively stagnant for low- and middle-wage workers. The perpetual system of health care payment – in which Americans are being saddled with a greater portion of health care spending without wage growth increasing commensurately to enable this payment – has never been sustainable but may soon become untenable. However, the need for fundamental reform should not preclude state legislatures from taking action to advance medical debt reform, even if these provisions are not completely adequate.
We believe that people should not have to battle collections agencies on medical debt at the same time they are battling diseases like cancer. Ensuring a healthy population should be a priority of every state and requires economic considerations of the effects of high health care costs on patients and families. Taking action now by passing medical debt reform on a state-by-state basis could mitigate the effects of impending losses to health care coverage and rising health care costs.
Dr. Nishant Uppal is an associate physician in the Department of Medicine at Massachusetts General Hospital. Dr. Benjamin James is the chief of general surgery at Beth Israel Deaconess Medical Center, where he runs a lab focused on financial toxicity experienced by cancer patients. They have published numerous times in top medical journals, including NEJM, JAMA, and Health Affairs on health care policy, costs, and affordability.
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