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A Small Ray of Light in the Grim World of Medical Debt

Today’s video discusses the terrible problem of medical debt in the U.S. and highlights a nonprofit organization, RIP Medical Debt, that is doing great work to help people ease or erase their burden of medical debt. The scale of the problem is staggering. According to a Kaiser Health News/NPR series done in 2022, 100 million Americans have medical debt. A quarter of those owe more than $5,000.

Those with medical debt are not just the uninsured. Many individuals have significant out-of-pocket exposure due to their deductible, copayments, and coinsurance. After all, the Affordable Care Act out-of-pocket maximum for 2023 can be as high as $9,100 for an individual or $18,200 for a family. Others incur medical debt by not understanding the financial exposure associated with out-of-network services. Some choose a high-deductible plan assuming continued good health and subsequently face serious illness and injury without the safety net required to cover their out-of-pocket obligations.

As noted in the video, some improvement has recently occurred associated with the three major credit rating agencies and how they report medical debt. These include eliminating reporting of paid debt and not reporting debts under $500. Also, the No Surprises Act, which took effect last year, provides some protection to those receiving emergency services from being subject to balance bills from out-of-network providers as well as those receiving in-network hospital services and being subject to out-of-network provider bills.

I read with great interest a Wall Street Journal article that appeared in December which introduced me to RIP Medical Debt. This nonprofit raises funds to purchase medical debt from hospitals and other providers at discounted rates. This is a win-win situation because the provider collects something rather than writing off a debt altogether and the indebted individual has the burden of debt reduced or eliminated. Please go to ripmedicaldebt.org and read about this organization. The home page states that for every $100 donated, $10,000 in medical debt is forgiven. The Wall Street Journal article also described RIP Medical Debt’s partnerships with various local governments using federal funds they received to help their residents with medical debt.

What I didn’t mention in the video but should have is that young adults, in particular, are frighteningly vulnerable to incurring medical debts. Young adults are often burdened with school loans and haven’t worked long enough to have meaningful savings. They’re not well-informed about making coverage choices. Some choose a high-deductible plan assuming their good health is a permanent state and unexpected illness or injury occurs. Some incorrectly conclude that because they don’t have assets, medical debt can’t affect them. We know this isn’t true because medical debt can lower your credit rating and plague you for years. I remember a call we had from a young man who was having difficulty opening a checking account due to medical debt which was associated with several rather small bills and already resolved. That information just hadn’t been removed from his credit report.

Because there is no easy solution to the problem of medical debt, my advice is as follows:

  • Know your out-of-pocket risk and try to avoid choosing a plan with potential out-of-pocket costs you can’t afford if at all possible;
  • Don’t consider out-of-network services unless you understand the financial exposure and can afford the services;
  • Always plan ahead to avoid a gap in coverage;
  • Don’t travel outside the U.S. without travel coverage;
  • Teach your children well. Ignorance relating to coverage is a terrible problem.

As in so many other aspects of life, preventing a problem is the wisest course of action. It is important to understand the protection your coverage provides but to also understand the financial exposure associated with the coverage you have. With information and education, we hope more Americans can avoid medical debt.