America's medical debt problem has parallels to the student debt crisis, experts told Insider.
Both are financially debilitating, putting people at risk of not being able to afford rent and food.
The Biden Administration is already taking steps to address it but the challenge of helping more low-income borrowers remains.
The Biden administration is finally delivering long-promised relief to more than 40 million Americans with federal student loans, half of whom will see their debt wiped out completely. But experts on medical debt say that student loans are just one piece of a household debt crisis, which debilitates millions of Americans.
At the end of August, President Joe Biden announced up to $20,000 in student debt for federal borrowers making under $125,000 a year - expected to completely eliminate the balance for 20 million borrowers. It takes a chunk out of what is often a prohibitive burden for many Americans, with interest snowballing an ever-mounting collection of bills that become impossible to pay off.
For some, medical debt can be just as prohibitive. The medical debt load in the US currently totals around $195 billion, according to the Kaiser Family Foundation, and 23 million Americans have medical bills of at least $250. Three million have unpaid medical bills totaling over $10,000. Like student-loan borrowers, those with medical debt are not immune to unfair practices - the Consumer Financial Protection Bureau previously found that inaccurate medical billing cost Americans $88 billion last year.
When both medical and student debt snowball, they become conduits for potentially devastating financial consequences, leading people to lose their homes and face lawsuits, for instance. Experts on medical debt see that as just one parallel between the two crises. On the other hand, one major difference is that medical debt is typically an unavoidable, life-and-death situation, whereas student loans are often a choice.
"You literally had no option because it was an emergency situation," Berneta Haynes, a staff attorney at the National Consumer Law Center told Insider. "The difference is that medical debt can happen to absolutely anybody, and it cannot be planned."
Medical debt creates "a racial wealth gap, and a racial health gap" in addition to burdening young and old people alike
Black college graduates are more likely to be in debt than their white peers, data shows, and that's because they have less wealth than their white counterparts historically. That's a wealth gap that translates to medical debt as well, Haynes said; one in three Black adults have past-due medical bills, compared to fewer than one in four white adults, she found in a study she published this year. She added that Black households are disparately impacted by aggressive medical debt collection practices, such as lawsuits and civil arrest for unpaid medical bills.
"There's a racial wealth gap, and a racial health gap," she explained. "Black folks have less wealth, Black families are less able to weather those bills when they do arrive."
Haynes also noted that younger adults are more likely to hold student debt, medical debt, or both. Nearly half of medical debt is owed by younger heads of household - those under the age of 44 - the US Census Bureau found last year. Similarly, more millennials, the oldest of whom are 41, according to Pew Research Center, owe student debt than any other generation.
That's not to say older people aren't impacted. As Insider previously reported, student-loan borrowers over 50 are continuing to hold debt burdens that have been decades in the making, forcing them to push off retirement, and older Americans who do not yet qualify for medicare can experience similar issues with medical debt.
Unpaid medical bills create major financial consequences
Experts also said the financial consequences of defaulting on medical debt, like on student loans, can be devastating. Haynes cited liens on a person's home - a legal claim on a property that can be used as collateral to repay a debt - as one way in which medical debt can become parasitic. If you default on either student or medical debt, lenders can also move to directly take some of your paycheck, as much as 25% of it.
"People are less likely to get a loan, and there are aggressive collection practices like lawsuits," Ruth Lande, Vice President of Hospital Relations at RIP Medical Debt, a charity focused on the elimination of personal medical debt, told Insider.
Lawsuits for medical debt are more common than those for student debt, but both transpire. And although medical debt is the most common collections tradeline in the US, it occurs for student loans as well. And collections agencies often employ forceful tactics for both. According to the National Consumer Law Center, collectors often misrepresent borrower rights, and that government oversight of collection agencies is typically weak.
'There's a lot of we don't see because of how opaque the medical industry is'
Recent legislation attempting to tackle student debt is a helpful first step, but only scrapes the surface of the debt load.
The No Surprises Act went into effect this year, which is meant to restrict surprise billings under certain conditions, was one move taken by the federal government. Sen. Bill Cassidy called it "a milestone in our effort to lower health care costs." In addition, three major credit bureaus elected to remove 70% of medical debt from credit reports, after working with the Consumer Financial Protection Bureau.
In April, the White House also unveiled ways to help Americans with medical debt, including increasing scrutiny over inaccurate medical billing and equipping consumers with education tools to help handle confusing billing practices.
They alleviate the burdens faced by many Americans, but have some blind spots, advocates said.
Haynes pointed out that much of medical debt is paid using credit cards, which means it doesn't register as medical debt - it's anonymized as credit card debt. That means that medical debt paid with credit cards is still going to appear on credit reports going forward.
Lindsey Muniak, Medical Debt Program Lead at the Debt Collective, a debtor's union and non-profit organization, told Insider that even though nonprofit hospitals receive billions of dollars in tax breaks in exchange for providing "charity care" to low-income patients, hospitals often skimp on it, The Wall Street Journal reported this year. A majority of America's hospitals are non-profits. She wants the IRS to establish clearer guidelines for keeping hospitals in check, she said.
"There's a lot we don't see because of how opaque the medical industry is," Muniak said.