Medical Debt and Its Relevance When Assessing Creditworthiness
Rukavina, Mark, Suffolk University Law Review
Millions of Americans who experience illness or injury, even those with health insurance, are at risk of incurring medical bills associated with their medical treatment. Many pay for their healthcare at or near the time of treatment. Some pay outstanding medical bills over time after negotiating short-term payment plans with their healthcare providers. Still others struggle for extended periods before ultimately paying their medical bills. Millions of American families incur billions of dollars in medical bills each year. (1) While some may choose to ignore these bills, millions of Americans experience privations paying them. The stress of dealing with illness is exacerbated when medical bills find their way onto a credit report, resulting in further financial distress for families.
Healthcare spending in the United States totaled $2.7 trillion in 2011, representing 17.9% of our nation's gross domestic product (GDP). (2) Spending on healthcare has increased significantly over the past decade; in 2000 it amounted to $1.377 trillion, or 13.8% of GDP. (3) For the past ten years, the cost of healthcare has consistently outstripped the consumer price index and wage gains for American workers. (4)
Not surprisingly, the amount patients have spent out of pocket for healthcare has also increased substantially--from $201.7 billion in 2000 to $307.7 billion in 2011. (5) These costs are in addition to the money patients and their families pay for health-insurance premiums. For some families this has meant fewer dollars to devote to other basic needs and savings. Unfortunately, millions of Americans do not have financial cushions that would enable them to absorb the increasing cost of healthcare. Instead, they incur medical debt.
The Patient Protection and Affordable Care Act (Affordable Care Act or ACA) will expand coverage through both Medicaid and private insurance sold through health insurance exchanges by 2014. (6) It is expected that the ACA will result in an increase in overall spending for insurance coverage and that this will extend insurance to millions of Americans who currently go without. (7) The expansion of insurance coverage is likely to provide relief in terms of costs paid out of pocket. Despite this expectation, growth in overall out-of-pocket spending is projected at an average rate of 5% from 2015 through 2020. (8) Current projections predict that total health expenditures will exceed $4.638 trillion in 2020, while out-of-pocket costs will be more than $443 billion that same year. (9) Even with healthcare reform, healthcare costs will continue to consume a significant share of the American family's budget. Research has found that healthcare expenses and the fear of incurring medical bills make people reluctant to seek needed medical care. (10) However, there has been far less research on the effect that medical debt has on peoples' ability to access credit. (11) In this Article, I intend to describe how the reporting of medical debt to consumer reporting agencies (CRAs) can influence consumers' credit histories and access to affordable credit.
II. MEDICAL-BILLING PROBLEMS
The combination of unaffordable healthcare costs and inefficient insurance-claims payment systems damages credit for millions of Americans. The problem of unaffordable medical bills is quite common and has increased in recent years. The percentage of working-age American adults experiencing problems with medical bills or medical debt increased from 34% in 2005 to 40% in 2010. (12) Seventy-three million Americans experienced problems such as being unable to pay medical bills, having to makes changes to their way of life in order to pay medical bills, being contacted by collection agencies for unpaid medical bills, or having to pay off medical debt over time. (13)
The melange of health-insurance products on the market also contributes to medical-billing problems. The lack of a standard health-insurance benefit package results in confusion for both patients and providers. …