Medical debt can be ‘a bit of a surprise,’ expert says — and 21% who have it owe $5,000 or more

Among the millions of Americans with past-due medical debt, there’s a decent chance they owe $1,000 or more, new research suggests.

While 39% of that cohort said they owe less than $1,000, the remainder (61%) owe more, including 21% who owe at least $5,000, according to a new Urban Institute report, which is based on mid-2022 survey data.

“Medical debt, unlike a mortgage or car loan and things like that, we don’t really choose,” said Berneta Haynes, a staff attorney and medical debt expert for the National Consumer Law Center.

More from Personal Finance:
5 key things to know when you create a will
How to factor your health into financial planning
Fraud cost consumers $8.8 billion last year

“We don’t choose when we get sick … so medical debt comes as a bit of a surprise,” Haynes said.

The Urban Institute study found that 73% of adults with medical debt owe hospitals at least some of it. Additionally, most of patients’ largest bills were owed to hospitals: About a quarter, 26%, had a tab of $5,000 or more, compared with 6% among those who owed only non-hospital providers (i.e., a  doctor or dentist).

“There are probably a number of explanations for the difference,” said Michael Karpman, author of the study.

“When people go to the hospital, they tend to face more higher-cost procedures, they may have greater health challenges, and there’s a lot of unpredictability about the charges and out-of-pocket costs that they’ll be facing, ” said Karpman, a principal research associate in the Urban Institute’s Health Policy Center.

Even among insured individuals, owing is not uncommon. Almost two-thirds, or 63%, of adults with past-due medical debt incurred it when they had insurance, the research found. Another 21% incurred it when the patients had no coverage and 16% occurred in a period with and without insurance.

Overall, an estimated 41% of people — or about 100 million adults — face medical debt, ranging from under $500 to $10,000 or more, according to a report from the Kaiser Family Foundation. 

The reasons for such debt going unpaid vary from person to person. The two main causes, said Haynes, is having a chronic health condition or being uninsured — or, often, both.

Additionally, many health care plans have deductibles that are high enough to pose affordability challenges for some patients. Deductibles are the amount you pay out of pocket before your insurance plan begins covering your care (although you may still be required to pay a copay or coinsurance).

For example, if the patient has a deductible of $1,000 and is billed that amount all at once due to, say, a surgery or hospital stay that costs at least that much, it may be more than they have in savings, various research shows. For example, more than half of households would struggle to pay an unexpected $1,000 bill, according to a 2022 Bankrate survey.

“Having to pay a $1,000 deductible is out of the range of reality for a lot of folks and can lead to risky decisions, such as putting it on a credit card or taking out a medical credit card,” Haynes said.

The average deductible in 2022 among employer-sponsored health plans was $1,763, according to the Kaiser Family Foundation.

Other contributors to unpaid medical debt are short-term health plans and health sharing ministries, according to the American Hospital Association. Those plans generally come with lower premiums but are not required to cover certain services and pre-existing conditions, or limit out-of-pocket costs.

One of the biggest causes of unexpected large medical bills historically was out-of-network providers being involved in your care — often at a hospital — without you realizing it. Then the bill would come and you’d discover that your insurance didn’t fully cover those charges, if at all.

However, there are signs that the No Surprises Act has reduced many instances of unexpected, outsized bills. That legislation, which took effect in 2022, generally stops you from being billed at the out-of-network rate (although consumers should still be on the lookout for such charges due to billing mistakes).

If you are hit with a large medical bill from a hospital, be aware that many have financial assistance programs. While not all for-profit hospitals offer one, nonprofit facilities are required to have them, Haynes said.

Check the back of your bill to see if there’s information on a financial assistance program, she said. Or, you can usually find it in the billing section of a hospital’s website.

Often, hospitals use 250% of the federal poverty level as the cutoff when determining a patient’s eligibility for free care or a reduced cost, the Urban Institute research notes.

The federal poverty level depends on the number of people in a household and is adjusted annually. In 2023, for a family of four, that amount is $30,000. So 250% of that is $75,000.

Separately, be aware that the three big credit-reporting companies — Equifax, Experian and TransUnion — made some changes last year to how they are handling past-due health care bills.

As of last July, once you’ve paid off any medical debt that shows up on your credit report, it will be removed (previously, it could remain on your record for seven years). Additionally, consumers also now get a year, up from six months, before unpaid medical debt appears on credit reports once it goes to a collection agency.

The credit firms also said that in the first half of this year, they will stop including any medical debt under $500 on credit reports. They are still on track to do that, according to a spokesman for the Consumer Data Industry Association.