The band-aid to hide a medical debt shame will not last long

The US has cause to celebrate after its uninsured rate reached a new low of 7.7% at the end of 2023, as per data from the US Health and Human Services (HHS). Yet, the rate of underinsured individuals (insured but coverage doesn’t enable affordable access to healthcare) remains obstinately high at 23%–25%, according to several studies. The cost of premiums, inequities, and income levels (not poor enough for Medicaid) contribute to the rise in underinsurance. The consequence is a negative impact on health outcomes, as people are hesitant to seek care unless it is critical and they are unable to pay for care, burdening them with medical debt.

Poor health and medical debt are the unfortunate twins that need to be separated

The state of one’s health is a function of several nonlinear variables, including DNA, social determinants of health (education, employment, living conditions), and personal choices. A sedentary lifestyle combined with a high-caloric diet is observed to be incongruous with long life expectancy and a high quality of life. However, that does not preclude one from having enough healthcare coverage. The lack of access to health benefits at an affordable price invariably leads to poor health outcomes and indebtedness. As seen in Exhibit 1, there is a correlation between the state of health and medical debt.

Exhibit 1: The double whammy of poor health and debt reflects the quality of society

Source: Peterson-KFF, HFS Research, 2024

This vicious cycle of growing medical debt, driven by poor health outcomes, must be broken—an economic imperative. The larger the number of individuals with both poor health and medical debt, higher is their risk of leaving the workforce. This risk rate is currently at 34% of all working-age Americans, which is alarmingly high.

CFPB does a solid by eliminating medical debt from credit report

There are several government programs at different levels to help alleviate the burdens of medical debt, but they appear to be few and insufficient. In this context, it is important to appreciate the recent proposal by the US Consumer Finance Protection Bureau (CFPB) to ban medical bills from credit reports. CFPB intends to leverage this proposed rule to end coercive debt collection practices and limit the role of medical debt in the credit reporting system, reducing the incidence of penalizing those with medical debt and enabling them to access credit for legitimate purposes.

The three big credit report agencies—Equifax, TransUnion, and Experian—have proactively eliminated medical bills from their credit reports since 2022. Yet, CFPB indicates that credit reports still show that 15 million Americans owe approximately $49 billion in collections due to outstanding medical bills.

While the CFPB proposed rule will not eliminate debt, it will significantly help those denied credit to have a shot at procuring credit. It may help a single parent secure a mortgage to buy a house and start focusing on their health or assist them in purchasing a vehicle to commute to work, allowing them to earn a living.

Time to reduce the exorbitantly high cost of care already

Though the CFPB’s proposal is helpful, it does not tackle the root of the problem—the cost of care. It’s about time to address this through ‘price control.’ At both the federal and state levels, the government has been setting prices (maximum and minimum) for a long time, as observed from caps on rent and gasoline. The Inflation Reduction Act of 2022 authorizes the Centers for Medicare and Medicaid Services (CMS) to negotiate directly with drug companies to improve access to some of the costliest single-source, brand-name Medicare Part B and Part D drugs, ensuring affordability of essential goods and services.

While the popular narrative is that the US is the mecca of capitalism, reality suggests the opposite—over 60% of the government budget (see Exhibit 2) is allocated to social programs.

Exhibit 2: Who are we kidding about capitalism when over 60% of government spend is on social programs?

Source: US Department of Treasure, HFS Research, 2024

While the government has the expertise to set prices, it may not always be willing to implement them. However, any price discussion in a public-private setting like US healthcare requires all stakeholders to come to the table. This is a tall order, as the entrenched forces that drive the $4.2 trillion US healthcare economy do not see the need to visit pricing. At the same time, we are reaching a breaking point at the macro level—the health of the nation is deteriorating (life expectancy is at 1996 levels, six in ten Americans have a chronic condition) and will likely impact productivity as 35% of adults are at risk of leaving the workforce.

The Bottom Line: While CFPB’s efforts to right a wrong are commendable, they must serve as a reminder of our own shortcomings in reducing the cost of care.

Health and access to care are not privileges but a human right, a sentiment that must be reflected in this business. It’s important to strike a balance between fair compensation, access to care, and health outcomes.

Moreover, we must embrace a whole-of-a-society approach that evangelizes healthy lifestyle choices (education, activity, nutrition), enables smart technologies (wearables, MedTech, telehealth), optimizes healthcare administration (prior authorization, claims, benefits management), and addresses inequities more aggressively. Failure to do so could lead us to a future of insurmountable hardships that we may never be able to overcome.