People who have medical debt or trouble paying their medical bills are more likely to have health issues — including high blood pressure, worse self-reported health status, poorer mental health, and shorter life expectancy. (1) (2) (3) (4) (5) (6) While people with greater health needs require more care and are more likely to end up with large medical bills, the evidence suggests that medical debt itself can also affect our health.

This report summarizes existing evidence on issues related to medical debt as a driver of health outcomes. Evidence for the drivers of health is well-established. Building on this body of work, we explore the connections between medical debt and health outcomes at the individual and population levels (Figure 1). Our review of the research looked at the effects of medical debt, the bills that can lead to it, and financial shocks and household debt more broadly.

Acknowledgment: This research was funded by the Annie E. Casey Foundation. We thank them for their support but acknowledge that the findings and conclusions presented in this report are those of the authors alone, and do not necessarily reflect the opinions of the Foundation.

Sycamore takes a neutral and objective approach to analyze and explain public policy issues. Funders do not determine research findings. More information on our code of ethics is available here.

Our review suggests that medical debt itself may affect health outcomes, exacerbate already poor health outcomes, and worsen existing health disparities via:

• Adverse effects on both economic stability and mobility.
• Stress that affects mental health and, in some cases, prompts riskier health behaviors.
• Reduced use of and access to medical care.
• Limiting access to neighborhoods with built environments that foster good health.

The effects of medical debt can be long-lasting. Past-due medical bills reported to a credit bureau affect credit history for seven years. (6) Debts can also be bought and sold multiple times over the course of many years. (7) These debt buyers and collectors often tack on additional charges and take legal actions – both of which can exacerbate and prolong the effects of medical debt.

Effects on Economic Opportunity

Medical debt has negative effects on people’s economic circumstances and can make it harder to stay afloat or get ahead.

Impact on Credit History

Medical debt hurts your credit history and credit scores. (8) (9) A creditor (i.e. a health care provider) or debt collector can report an unpaid medical bill to credit bureaus at any point after the bill is issued. (10) If you do not pay the bill within 180 days of that report, the debt appears on your credit report as an “account in collections.” (11) Once reported, your credit score is reduced for seven years — even if you ultimately pay off the debt (Note: It can be removed immediately if an insurer pays it). (6) While consumers can usually improve their credit scores by making on-time debt payments (e.g. for a mortgage or credit cards), credit bureaus do not track on-time medical bill payments. As a result, medical bills can reduce your credit score but cannot improve it. (12) (13)

Credit scores have a wide-range of uses that affect the drivers of health — including housing, employment, access to transportation, and the ability to access the type of credit that helps build wealth. Lenders use credit scores in a number of ways to gauge an individual’s liabilities and the probability that they will pay their financial obligations:

• Access to “Good” Debt — Lower credit scores can make it harder to access the types of loans and credit that can enhance economic mobility and long-term wealth (e.g. home loans). (14) (15) (16)
• Employment — Many employers check credit reports when making hiring and promotion decisions. (17) A 2017 national survey of employers found that over 30% checked credit history in making employment decisions. (18) Some evidence, however, calls into question the extent to which employers rely on credit scores alone. (16)
• Housing — Credit scores can determine a person’s ability to secure a mortgage as well as the terms of their loan. In addition, landlords often check potential tenants’ credit reports, and they may reject applicants for poor credit history or require a larger security deposit. (17)
• The Cost of Debt — A good credit score helps people qualify for loans with lower interest rates. In August 2018, a person with good credit could have paid $3,000 less in interest on a $10,000 car loan than someone with a poor credit score. (19)
• Transportation & Utilities — Credit history can also affect basic needs like transportation and utilities. Car loans can be more expensive or unattainable for those with poor credit, and utility companies (e.g. water, electricity, internet, cable) may require larger security deposits from new customers with poor credit. (17)
• Insurance Premiums — Credit history can also affect home, auto, and life insurance premiums. (20) (21)

Medical debt, however, does not always accurately reflect one’s will or ability to pay. (12) (22)  A 2014 study by the U.S. Consumer Financial Protection Bureau found that half of people with medical collections had an otherwise clean credit history. (23) One reason may be bills sent to collections for reasons other than willingness or ability to pay (e.g. a surprise bill or as a result of the complexities of medical billing). As a result, some entities that evaluate credit information (e.g. credit bureaus, lenders, employers) now exclude medical collections when reviewing credit histories. (12) (22) However, excluding medical debt is not a required or widespread practice.

Diverted Resources

Those who lack the resources to pay unexpected medical bills may spend down their savings or divert funding from other bills and expenses. (14) (24) (1) (9) People with large medical bills and medical debt, for example, report difficulty paying other bills and meeting basic needs. They may have problems paying for food, housing, clothing, and utilities. (1) (25) (26)

Other Debts

Financial shocks like an unaffordable medical expense may lead people to use higher-cost financing methods like credit cards or high-cost loans. (14) (24) (1) (27) (28) (29) (30) (9) For example, a 2016 Kaiser Family Foundation national survey found that 34% of people who reported problems paying medical bills increased credit card debt to help pay them. (1)

The evidence on the effects of alternative financial products is mixed. These products include services provided outside federally-insured banks — such as money orders, check cashing, payday lending, flex loans, and tax refund loans. People rely on these services to not only fill income gaps or pay for unexpected expenses like medical bills but also to pay for ongoing expenses. (28) Some evidence suggests that their use is associated with reduced ability to meet basic needs, poor health outcomes, and financial insecurity. (31) Other studies suggest they may have neither a negative nor positive effect on measures of financial well-being. (32)

Cycles of Debt

Financially troublesome medical bills and medical debt may lead to or prolong cycles of debt. People who face problems paying medical bills are more likely to have credit card debt, student loans, car loans, mortgages, and payday loans (i.e. a short-term, high-interest unsecured loan). (1) (33) (34) In some cases, a single medical bill brought on by an unexpected event may be the first of many that also makes it harder to pay off other types of debt. (34)

Lawsuits

Individuals with medical debt may ultimately face lawsuits that exacerbate the negative economic effects of debt. Like all creditors, health care providers and debt collectors are allowed to sue people in civil court for unpaid bills. A growing number of studies and media reports suggest that medical debt lawsuits are common in Tennessee and other areas of the country. (35) (36) (37) (38) (39) (40) (41) (42) (43)

Most debt lawsuits go unchallenged. In a 2015 CFPB survey, about 15% of Americans contacted by a debt collector in the past year reported being sued. Of those, only about 26% attended the court proceeding. (44) Some reasons people may not attend include lack of notice or legal representation, receiving incorrect or misleading information, confusion about the alleged debt, and income, job, or travel constraints. (7) (45) When people don’t show up, courts often issue default judgments. (7)

Lawsuits can inflate the costs of the original debt by tacking on court costs, attorney’s fees, and interest. Collectors can use a number of tools to recoup settlements, including garnishing wages and seizing assets. (7) (45) Wage garnishments effectively reduce income, and the seizure of a vehicle, tools, or equipment could make it harder for individuals to work. In the some scenarios, even a home could be seized to pay down a debt. (46)

Bankruptcies

People with medical debt are more likely to file for bankruptcy. People file for bankruptcy for multiple reasons, and the extent to which medical debt causes bankruptcy is disputed. (47) (48) However, multiple studies suggest that medical debt is often a major contributor in consumer bankruptcies. (49) (9) (50)

Effects on Health Behaviors

Medical debt negatively influences health behaviors. Debt and debt-related collections practices can cause stress that can lead to risky health behaviors like smoking, increased alcohol consumption, and poor nutrition. (51) Some collectors reportedly use threats of legal action and jail time as an intimidation tactic, even when there may be no legal basis for a lawsuit. (7) These and other aggressive debt collection practices — garnishing wages, property liens, and home foreclosures — can further increase stress. (52) (53)

Effects on Clinical Care

Medical debt negatively impacts access to and utilization of needed health care — at both the individual and community level.

Individual Utilization and Access

People with medical debt and other forms of debt are less likely to access needed health care or prescriptions than those without. (54) (55) (56) (2) (1) (57) (58) Potential reasons can include being hesitant to incur additional debt or providers refusing service until past-due bills are paid. (24)

Community Access

The bad debt that arises from medical debt can threaten the financial viability of local health care providers. Most hospitals that close do so because of financial problems. The causes of financial problems are often multi-dimensional, but high levels of uncompensated care and bad debt can put financial strain on hospitals — particularly for rural facilities that have a less profitable mix of payers and face a number of other negative pressures (e.g. demographics, low utilization, technology, etc.). (59) (60) (61) (62) (63) This can contribute to hospital closures that affect entire communities — not just the local residents with medical debt.

Effects on the Physical Environment

Medical debt can create barriers to financial security and homeownership that limit access to neighborhoods with built environments that foster good health. Higher-income, higher-cost neighborhoods and those with more owner-occupied homes tend to offer better access to parks, green spaces, and community recreational opportunities and supervised programming. (64) (65) (66) (67) (68) (69) (70) Meanwhile, the construction of new parks, greenways, and green spaces in low-income neighborhoods can boost local property values – which may or may not affect who can afford to live there. (71) (72) (73)

Effects on Health Disparities

Available information suggests that medical debt may worsen existing racial and socioeconomic disparities in health security. Populations that experience health disparities — typically black and Hispanic Americans and people with less income and education — are more likely to have medical debt. (1) (57) (74) (43) Communities with a larger share of non-white residents and those with lower incomes are also more likely to have higher rates of medical debt. (75)

For financially fragile households already facing issues that contribute to health disparities, medical bills they can’t afford may be a tipping point. In fact, evidence suggests that the negative effects of medical debt for these populations may be worse than for other populations. For example:

• Low-income households may be more susceptible to bankruptcy resulting from medical debt. (33) (34)
• Debtors who are black may face more lawsuits. (76)
• Uninsured individuals with lower incomes may be likelier to face more aggressive debt collection practices. (52) (53)
• The effects of stress may be more pronounced for Americans who are black, Hispanic, or have low socioeconomic status. (77)

Conclusion

A growing body of evidence connects medical debt with health outcomes through effects that we already know influence health. Medical debt-specific research and existing research on the drivers of health draw a clear link between these factors and poorer health outcomes. Even when poor health itself contributes to medical debt, debt-related issues can exacerbate the situation and worsen existing health disparities. Like all other drivers of health, the effects of medical debt are closely interrelated and mutually influential (e.g. the health effects of medical debt may intensify economic stability issues by leading to lower productivity).

*This paper was updated on March 26, 2024 to correct a mistake in Figure 1.

References