The Inconvenient Truth About Medical Debt Relief

More than 40% of American adults have medical debt, and almost 60% of those with hospital medical debt had health insurance. It’s tempting for policymakers and private entities to provide medical debt relief. Has medical debt relief actually helped individuals who received it?

To answer this question, four economists from Harvard, Stanford, the University of Munich, and UCLA conducted randomized experiments involving 83,401 individuals. They found “no improvements in financial well-being or mental health from medical debt relief, reduced repayment of medical bills, and if anything, a perverse worsening of mental health.”

These results came as a negative surprise to many. As reported by The New York Times, the authors expressed disappointment, but they had no intention to “sugarcoat” the findings. They carefully designed, conducted, and documented the study, which contains extensive 76-page appendices.

Medical debt relief can also prompt behavioral changes among hospitals and other providers. As the study documented, individuals who received relief for past medical debt are less likely to pay subsequent medical bills. This trend can cause providers to erect access barriers for low-income patients—such as requesting upfront payment at the time of service—and raise commercial prices. These responses would adversely affect low-income patients, threatening the intended purpose of medical debt relief.

Just like prevention is the best medicine, preventing medical debt from occurring deserves more effort than relieving it after occurrence. We should focus on the root causes of medical debt.

First, low-income patients are often unaware of their option to apply for charity care. U.S. hospitals typically provide charity care to eligible patients, writing off or discounting their medical bills. Hospitals design their own charity care eligibility policies, and some state regulations mandate the provision of charity care to certain patient groups. Low-income patients—both uninsured and insured but exposed to cost-sharing—should request and examine charity care policies when using hospital care. Dollar For, a nonprofit platform, provides national information and assistance for patients to access charity care.

Insured patients with higher income enrolled in high-deductible plans should keep in mind that cash prices are often cheaper than their insurance negotiated prices. Journalist Marshall Allen provided guidance on how to leverage cash prices and exercise diligence to reduce medical bills.

Second, high healthcare prices contribute to medical debt. Patients are less likely to incur medical debt when prices are low. Competition is the only approach capable of lowering prices, stimulating innovation, improving quality, and expanding access. Therefore, public policies that level the playing field, remove anticompetitive roadblocks, and reduce compliance burden for providers would put downward pressure on prices.

Insurance reforms that reduce premiums and allow patients to personally and directly benefit from lower healthcare prices would also depress prices. Patients with more control over their healthcare dollars possess formidable bargaining power.

Third, low income leaves individuals vulnerable to medical debt. The study found that medical debt relief worsened mental health among individuals who received the largest debt relief, especially regarding “feeling bad about self, like a failure, or let yourself or family down.”

The law of accounting dictates that when an individual or business receives debt relief, the entity must lose assets, surrender some ownership, incur new debts, or record a gain—none of which provides unambiguous sustainable benefit, unless the debt relief is a form of payment to reward the efforts exerted by the entity. In this case, effort exertion improves the entity’s earning ability. Simply put, when debt relief is not earned through efforts but given by others, the entity has less prospect of benefiting in the long run.

Therefore, pro-growth and pro-job policies that allow able-bodied adults to earn more income through their efforts would mitigate medical debt in a sustainable manner. Income, a key social determinant of health, also boosts health and reduces medical needs.

We owe to the four economists for conducting this pioneer study that revealed the inconvenient truth of medical debt relief. It’s up to the public to ensure that their findings guide evidence-based policy solutions to effectively address medical debt for Americans.