Runaway Healthcare Prices Saddle Millions of Americans with Medical Debt; Why and How to Avoid It

by Edwin Quinabo

Each year medical costs are rising across the board leaving increasingly more Americans strapped in medical debt.  The financial toll in extreme cases is pushing debtors to file for bankruptcy or lose their home. More commonly their credit takes a nosedive which often results in them being turned away from doctors, jobs and loans. 

Seniors have come out of or delay retirement to pay for medical debt. Some are sued and have their wages garnished. Others report being harassed by collections agencies or spend years saddled with hefty payments. 

Medical debt adds to stress in the worst possible time when patients are sickly and should instead be focused on getting better, health experts say.

Dr. Rainier Dennis D. Bautista, President, Philippine Medical Association of Hawaii, said “Medical debt is a massive issue. According to a report by the Kaiser Family Foundation (KFF), over 100 million Americans—about 41% of adults—are dealing with medical debt. That’s nearly half the population, highlighting just how common and devastating this problem has become.”

Sobering stats on medical debt

Medical bankruptcy is the top reason why Americans file for bankruptcy, and it represents 66.5% of all personal bankruptcies, according to the American Journal of Public Health. LendingTree found close to 60% of Americans have had medical debt at some point in their life. Bankrate reports 18% of Americans borrowed money to cover health care expenses. Debt.com says 56% of Americans had their medical debt sent to collections. Among medical debtors, 63% say they have had to cut spending on essentials such as food and clothing, while 48% say they have used up all or most of their savings, according to a KFF survey.

Dr. Bautista shares the story of Maria who faced $10,000 in medical debt after surgery. “Even though she worked two jobs, she couldn’t pay off the debt quickly. As a result, her credit score took a major hit, making it difficult for her to secure a car loan or find affordable housing.  Cases like Maria’s are unfortunately far too common.”

He explains, “For many people who can’t pay their medical bills, it leads to financial ruin. Medical bankruptcy has become far more common than it should be. A single emergency room visit, or hospitalization can result in bills that wipe out savings, especially for those without strong insurance coverage. Hospital services alone account for nearly a third of healthcare spending, and for individuals without adequate insurance or with high-deductible plans, even a brief hospital stay can result in thousands of dollars in out-of-pocket expenses. It’s a cycle that traps people in debt and impacts their ability to move forward financially.”

The American Journal of Medicine found that 48% of those who filed for medical bankruptcy say their largest expense was the hospital bill. KFF found short-term hospital stays are what causes issues with medical bills in 66% of cases.

Dr. Jon Avery Go, Primary Care Clinic of Hawaii, says there are several reasons why some fall into medical debt, “factors that may include high insurance deductible that patients may end up postponing essential medical treatment and the severity of illness becomes more complex which later might require a higher level of care like hospitalization.  In the end it will cost more to treat.  Another cause of medical debt is lack of adequate medical insurance coverage that the patient ends up paying out of pocket.”

To stay out of medical debt, Dr. Go says prevention is key. “I would advise patients to get their annual physical examinations and being proactive in getting age-appropriate cancer screenings done like pap smear, mammogram. colon cancer and prostate cancer screening to name a few.”

Charmaine Gonzalvo, nurse practitioner, Makakilo, 30-years-old, said medical debt is something to be concerned about. “As we age, more health problems can arise, and that [medical debt] is the least thing I would want to worry about.” KFF found that 65% of Americans list unexpected medical expenses as their top financial concern.

Healthy Americans also struggle with healthcare costs

Mark Ruiz, Downtown Honolulu, mentions the recent national public outcry of high medical and insurance costs following the assassination of Brian Thompsom, the CEO of the UnitedHealthcare by suspect Luigi Nicholas Mangione. “The lack of sympathy for the killing of that healthcare CEO is wrong but it shows how angry people are with our healthcare system. Medical debt is a problem. But it’s not just sick people who are being clobbered with healthcare costs.  Just paying for health insurance as a healthy person is ridiculously high. And when we hear people are being unfairly denied claims by their insurers that could lead to medical debt, of course, people will be angry. What are we paying all that money in health insurance for if many of us are being denied claims?” Ruiz said.

A report from the nonprofit Health Care Cost Institute found that the average person with employer-sponsored insurance spent $6,710 on health care in 2022. For a family, the average health insurance premium cost in 2024 was $25,572, combining employer and family contributions, according to KFF. Premiums have increased by half since 2014. 

Insurer denial rates varied widely, ranging from 2% to 49%.  A 2023 KFF analysis of insurance delivered under the Affordable Care Act found that 17% of in-network insurance claims were denied in 2021.  In a 2023 KFF survey, 18% of insured adults reported that their insurer did not pay for care that they thought was covered in the past year.  

KFF found that 62% of people with medical debt say they were insured when starting medical treatment. Some 26% of those who had insurance when their treatment started and later had issues with paying the medical bill say that their claim was rejected. This shows that medical bankruptcies with insurance are still a possibility.  Best Credit Cards found 39% of those who have issues with medical bill payments already have employer insurance.

Rising cost of healthcare driving up medical debt

Dr. Bautista said one major reason so many Americans are in medical debt is the rising cost of healthcare. “This high cost is driven by factors such as expensive hospital care, rising prescription drug prices, and advanced medical technologies.”

The United States spent $4.87 trillion on health care in 2023, according to an analysis by KFF. That’s $14,570 per person. In 2000, the total health spending was $2.2 trillion or $7,908 per person. That’s about double the amount from 2000 through 2023. 

The pace isn’t expected to slow down. The nonprofit Peter G. Peterson Foundation projects by 2032 the total health spending will climb to $21,927 per person, about one-fifth of the American economy.

“Looking ahead, healthcare spending is expected to grow at an annual rate of 5.5%, potentially outpacing wage growth and leaving more Americans vulnerable to medical debt. Innovations such as value-based care and digital health tools could help curb costs, but these changes require widespread adoption and significant investment. For now, the combination of high prices, limited transparency, and the increasing burden on patients to shoulder healthcare costs is a key factor driving the prevalence of medical debt in the U.S.,” Dr. Bautista said.

Aging of America 

Health experts cite the aging of more Americans as another reason why healthcare costs are on the rise. The American population is the oldest it has ever been and getting older. Comparing per-capita health care average spending by age groups, the Peterson Foundation found: $6,669 for adults ages 19-44, $20,503 for seniors ages 65-84, $35,995 for people 85 and over.

Red Tape, Administration

“Administrative costs in the U.S. healthcare system—among the highest in the world—further inflate bills, often leading to unexpected charges for patients,” Dr. Bautista said. 

The United States spends $1,055 per person on healthcare administration, compared to an average of $194 in peer countries, according to a 2023 analysis by the Peterson Foundation. There are higher administrative costs for both providers and for insurers.

Overpricing

The same Peterson Foundation study states that because the federal government tends to underpay for health care through Medicare and Medicaid, hospitals “lose 10 to 15 cents on the dollar” when the government is paying. Hospitals then must figure out how to make up for those costs somewhere. For example, in the case of an MRI scan of the lower spinal canal, it costs $269 under Medicare, but in the commercial market it’s $1,311. 

Corporate Consolidation

Caroline Pearson, executive director of the nonprofit Peterson Center on Healthcare, said a wave of consolidation has concentrated power in both the insurance and health-care provider industries. Consolidation, she said, has pushed up prices on both sides.  Like other industries of concentration, the healthcare industry having less competition can mean higher prices.

Government response to and proposals to help alleviate medical debt

Federal and state governments have their own programs to cancel medical debt. As part of the American Rescue Plan, $7 billion has been earmarked for medical debt up until 2026.  Consumer advocates say throwing money at a broken system is only a band aid solution. 

Health care reform advocates want the government to consider two major changes: 1) Cap out-of-pocket spending for patients, setting an upper limit on how much they are required to spend; and 2) Make health insurance progressive, like America’s tax system. Insurance companies and employers could charge lower premiums to those who earn less. 

Reformers say what can have an immediate impact is no longer penalizing credit due to medical debt. Studies show a majority of people with medical debt do not have other forms of debt.

Some states are looking to pass laws that will prohibit health providers and debt collectors from reporting medical debt information to credit agencies. That means unpaid medical bills should no longer show up on people’s credit reports, which consumer advocacy groups say is a boon for patients with debt.

Politicians who support passing credit protection against medical debt say because people don’t choose to have a medical emergency or illness, this type of debt should not count against them. They also argue that medical debt is more prone to inaccuracies because of billing mistakes by health providers and insurers. Currently under the Consumer Financial Protection Bureau (CFPB) medical debts under $500 do not appear on credit reports.

Dr. Bautista mentions possible solutions for the government, 1) increase government support for medication affordability programs and subsidies for those managing chronic conditions; and 2) placing a cap on hospital and pharmaceutical costs, ensuring that healthcare remains within reach for the average American.

He says sharing your experiences of medical debt and financial hardships with lawmakers can help to drive meaningful policy changes.

Gonzalvo said she supports federal and state government programs that erase medical debt for some people. “I support it because even with only few programs, they offer significant contributions in aiding the load of medical debt for those in need. Anything helps.”

Ruiz described what he believes was an unnecessary procedure that incurred his past medical debt. “I went to see my doctor – who I no longer go to – for a fever and swollen throat. He said I could have malaria and sent me immediately to get an MRI. I thought that was odd especially since I hadn’t traveled to a foreign country or been exposed to anyone who went abroad. I have insurance so I went to get one that same day. And to my surprise, even with insurance, it cost me about $750. The MRI showed nothing abnormal. My fever went down in a few days, and I felt scammed, to be honest. A few hundred dollars was not extra money I had at the time. So, yes, government assistance for medical debt is something I support, especially for those hit with thousands of dollars they cannot pay for.”

Non-profit local relief effort

Locally, Lima Kokua Inc. partnered with Undue Medical Debt (formerly called RIP Medical Debt) to relieve medical debt for over 5,000 Hawaii residents. Reports said that a total of $3,508,180 has been relieved so far for Hawaii families who may not qualify for relief programs or whose incomes do not allow them to purchase medical insurance.

“I was shocked to learn that medical debt was the number one cause of personal bankruptcy. This, along with the desire to help our neighbors across Hawaii, convinced our group that eliminating the medical debt hanging over many of them, was the best way we could help minimize the stress of recent events there,” said Lima Kokua’s President Sara Ward.

The national nonprofit Undue Medical Debt has so far relieved nearly $7 billion in medical debt. “The emotional and mental burden that people have from owing medical debt is substantial,” Undue Medical Debt Director of Development Scott Patton said. “What is uniform to all of the folks who reach out to us is how happy they are that something like this is happening in the world. They might have shoeboxes full of medical bills and knowing that one is gone lifts a tremendous load off for these folks.”

How to avoid medical debt

Dr. Bautista said staying out of medical debt requires proactive planning and knowing where to seek help. He recommends eight key steps: 1) Understand Your Insurance Plan (review deductibles, copays, out-of-pocket maximums, in-network vs out-of-network); 2) Ask for Cost Estimates (before any treatment or procedure) and compare prices for the services in your area; 3) Negotiate Medical Bills with hospitals and insurers (look into financial assistance programs, double-check your bills for errors); 4) Set Up An Emergency Fund; 5) Leverage Preventive Care (get regular check-ups and screenings); 6) Understand Your Rights (in the No Surprises Act and laws on medical debt collection practices); 7) Reach Out to Organizations for Help; and 8) Consider Alternative Payment Options (some medical-specific credit options may offer lower interest rates than traditional credit cards).

Some organizations that could help with keeping medical costs down or assist in medical debt issues include: 1) Legal Aid Society of Hawaii (www.legalaidhawaii.org) can provide free or low-cost legal assistance for medical debt issues. They can help you understand your rights or challenge unfair practices. 2) Hawaii SHIP (State Health Insurance Assistance Program) offers free counseling for Medicare beneficiaries. (www.hawaiiship.org). 3) Med-QUEST (www.medquest.hawaii.gov): check your eligibility and apply online through the Med-QUEST Division website. This can help reduce out-of-pocket costs for doctor visits, prescriptions, and hospital care.

“By focusing on personal health through regular doctor visits, managing chronic conditions, and staying active, individuals can reduce their healthcare costs significantly. At the same time, engaging with political leaders and advocating for systemic reforms can help create a more affordable healthcare system for everyone,” Dr. Bautista said.

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