There is a better approach to the problem of medical debt 

Victor Moussa - stock.adobe.com

Getting sick today all too often means financial distress — or worse. This is the troubling reality for some 35 million American working-class families squeezed by flimsy high-deductible health insurance plans and rising out-of-pocket costs.

Recent data highlights the scope of the problem. Today, Americans hold at least $220 billion in medical debt. About 14 million people, or 6% of adults in the U.S., owe more than $1,000 in medical debt. Nearly 70% of those with medical debt are employed and struggling to juggle expenses with rising costs of housing, education and daily living.

Unfortunately, the Harris campaign's pledge to wipe out medical debt — while well-intended — could create massive unintended consequences for patients and providers. An initial step in this direction, a proposed rulemaking from the Consumer Financial Protection Bureau, seeks to impose a new federal mandate to remove medical debt from consumer credit reports, disregarding important market innovations and the realities of our health care system.

Let's take a closer look. First, removing medical debt from credit reports is likely to result in a wave of lawsuits against patients. Providers and debt servicers who currently use credit reporting as a pathway to resolve debt will instead escalate through the legal system. The CFPB's recently released 2024 report on debt collection found that the third highest number of complaints were related to threats to take legal action — surely, the administration doesn't want to see more patients in courts.

Second, the proposed rulemaking will result in more debt going unpaid — leading to higher health care costs for all Americans. Experts at Georgetown University's McDonough School of Business examining this risk last fall noted "the median operating margin for hospitals in the United States is 0%, according to the American Hospital Association, and more than half of hospitals reported a loss at the end of 2022." The cost has to land somewhere.

Smaller providers are especially vulnerable. As Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, warned in a recent column, "Small to midsize businesses also dominate the medical provider space. ... These doctor's offices, clinics, medical and diagnostic laboratories, outpatient clinics, and specialty providers need revenue to keep their doors open. Many of these providers are already racked by government rules and an insurance system bureaucracy. ... Added pressures that may come with higher bill delinquencies would translate into higher patient fees and costs."

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This could accelerate the concerning trend of patients being required to pay in full before nonemergency surgeries. While these policies help hospitals avoid the costs and difficulties of collecting unpaid bills, including debts from insured patients, they place a significant burden on patients and can potentially delay essential medical treatments​.

It doesn't have to be this way. Having spent nearly 30 years in the financial services industry, there's one thing I know to be true: Medical debt is different. It isn't planned and it isn't a choice. Solving the complex, structural challenges at the core of this crisis is essential to building a stronger economy that works better for all Americans. And everyone — government agencies, hospitals, patient advocacy organizations, credit agencies and the servicing industry — has a role to play.

To tackle medical debt, we need patient-first solutions that prioritize dignity and financial wellness. Positive credit reporting is one such solution that can empower patients on their medical debt repayment journeys and move them toward financial stability. Instead of punishing patients for unpaid debts, this method rewards responsible actions like making timely payments. Just as paying rent or car loans helps build credit, paying off medical debt should do the same. It's a simple shift that could make a big difference for those looking to improve their financial standing.

The CFPB's 2024 report on debt collection revealed that many of consumers' complaints concerned the pursuit of debts not owed and threats to take legal action. A collaborative, industry-led Patient Bill of Rights could set the standard by codifying that collectors always request original data, and eliminating fees, interest and lawsuits over unpaid medical bills. Applying these steps would ensure patients are treated fairly while managing their debts, and aligns with the rulemaking's goal of compassionate care.

We're also seeing innovative tools emerge that help people manage their medical bills. For instance, some financial wellness platforms offer no-cost calculators that use verified income data to help patients make informed financial decisions. These tools have already led to significant savings, providing that solutions exist to help patients pay what they can afford while keeping health care providers financially solvent.

As the rulemaking process continues, I'm hopeful the administration will step back and consider these alternatives — approaches that keep patient dignity front and center while ensuring our health care system remains strong. 

For those who are sick, physical healing is only the first step toward long-term health. It's high time the government embraced sustainable solutions that advance the financial side of wellness. Papering over the problem of medical debt will leave everyone worse off. Tackling this crisis will require working together.