The solution seems obvious. Forgiving medical debt should ease both financial and emotional burdens for the two in five people in the US who carry it.
Yet a new comprehensive study that tracked more than 200,000 patients and randomly relieved more than $169 million of medical debt for 83,401 patients finds the reality is much more complicated when it comes to languishing hospital bills. Canceling overdue medical debt on average does little or nothing to improve credit access, existing bill payment rates, or even mental health, researchers write in a new working paper.
“Debt relief—at that point—comes too late to have a meaningful impact on people's lives.”
“We're not saying that medical debt doesn't matter,” says Harvard Business School Assistant Professor Raymond Kluender, the study’s lead author, noting researchers were surprised by the results. “We're saying that once the person has been enduring the hospital collections process for 12 months or 15 months, once that debt has been sent to collections, it's very unlikely to be repaid. Debt relief—at that point—comes too late to have a meaningful impact on people's lives.”
Because deductibles and copays are on the rise, even people with health insurance often are saddled with medical debt. Policymakers have taken notice, and in an election year amid an uncertain economy, health care, debt, and economic mobility are all hot issues.
A comedy show discovery
Nearly two-thirds of households with medical debt cut spending on food and clothing, with almost half draining their savings to pay the bills, according to a Kaiser Family Foundation survey. Medical debt tends to be a more pervasive problem among those earning less than $40,000 per year and among Black and Hispanic households compared to other groups.
As of March 2024, 15 state or local governments had passed programs to pay for about $8 billion in medical relief. Five more are considering moves that would bring the total to almost $13 billion.
Many work with a nonprofit called Undue Medical Debt (formerly named RIP Medical Debt), which raises funds from private donations to relieve medical debt. Because so little medical debt sent to collections is ever repaid, it can be purchased for pennies on the dollar. The organization has relieved more than $11 billion of debt to date.
Kluender says he and his colleagues embarked on the study in 2016 after watching a segment about the nonprofit on comedian John Oliver’s HBO show Last Week Tonight.
Kluender coauthored the study with Neale Mahoney, a professor at Stanford University; Wesley Yin, a professor at the University of California at Los Angeles; and Francis Wong; an associate professor at the Ludwig-Maximilians University of Munich.
Almost $170 million in medical debt
To measure the impact of medical debt relief, the researchers conducted two experiments in partnership with RIP Medical Debt and their debt collector partners. The authors tracked outcomes using credit reports, proprietary surveys, and data on future debt sent to collections.
In the first experiment, researchers compared more than 14,000 randomly selected patients for whom RIP Medical Debt relieved a total of about $19 million in debt with a control group of more than 60,000 patients who did not receive relief. Patients held an average of $1,321 in debt that the hospital was selling to debt collectors. RIP Medical Debt made its purchases for 5.5 cents on the dollar between August 2018 and October 2020.
The second experiment tracked $150 million in medical debt for roughly 69,000 people who had been in collections for several years. RIP Medical Debt purchased this debt in March and October 2018 for less than one cent on the dollar. On average, people in this group had $2,167 in medical debt.
Eliminating debt didn’t relieve financial stress, depression
The experiments revealed that paying off overdue medical debt had no impact on overall financial wellbeing or mental health. In fact, those who received debt relief were less likely to repay their other outstanding medical bills. Researchers found no impact on credit use and access or financial distress on average.
That contradicted expectations the authors found in a survey conducted of 45 experts before the study, including academics, nonprofit staffers, and government or private sector employees. These experts predicted a median 7 percentage point reduction in depression tied to the debt.
Results also contrast with studies involving other kinds of debt burdens, like student debt or mortgages. One reason for that may be that medical debt is often involuntary and much less likely to be repaid than these other types of debt, Kluender suggests.
Unexpected result merits more study
Kluender points to earlier research that suggests availability of financial assistance early boosts the chances patients will actually receive the care they need to detect and treat conditions, such as diabetes. Past research also shows large increases in health care use and reduced rates of depression when patients are provided with insurance. Policymakers and managers should focus their efforts on helping people with debt before they go through the stress of the collections process, he says.
“We were optimistic that it could nevertheless have a cost-effective impact.”
“An economist might not be that surprised that this program that costs a penny or two cents on the dollar is not going to have $1 of impact,” Kluender says. “We were optimistic that it could nevertheless have a cost-effective impact given the low cost of the intervention and the fact that patients are ultimately on the hook for the full face value of the debt.”
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Feedback or ideas to share? Email the Working Knowledge team at hbswk@hbs.edu.
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