Medical Debt-Relief Can Backfire on Patients

Americans collectively owe some $220 billion in medical debt. In response, a growing number of states, including New Jersey and Connecticut, are using public funds to relieve those debts.

Gov. Josh Shapiro, D-Pa., proposed doing something similar in his state earlier this year.

But is canceling medical debt the best way to help cash-strapped Americans?

Not according to an eye-opening new study published last month by the National Bureau of Economic Research.

The analysis finds that the benefits of medical debt-relief range from modest to non-existent — a conclusion the study's authors called "sobering."

It's yet another counterexample to the progressive dictum that government assistance is the best response to most social problems — and health policy problems, in particular.

In this case, the best evidence suggests that funneling taxpayer dollars into medical debt-relief is a waste of money.

Despite the headline numbers, medical debt just isn't as widespread as progressives assert. According to the NBER paper, two in five Americans hold some form of medical debt. And most of them owe less than $2,500.

Only 6% of American adults, meanwhile, owe over $1,000 in medical debt, the Kaiser Family Foundation reported earlier this year.

And yet, no less than 15 states and municipalities have devoted huge sums of public money to medical debt relief at a total cost of $8 billion.

Another five governments are weighing similar reforms which, if passed, would bring that total to $13 billion, the NBER study's authors note.

These programs raise a number of nagging questions.

Why should medical debt get special treatment compared to, say, credit card debt or auto loans? Based purely on the numbers, it would appear that Americans' cumulative $1.13 trillion in credit card debt would be the far more urgent financial problem.

It's safe to assume that, were so many Americans not swimming in credit card debt, they might find it easier able to keep up with their medical bills — or all their other bills, for that matter. Yet few, if any, policymakers have suggested government-backed credit card debt-relief programs.

Medical debt forgiveness looks even more dubious as a policy goal in light of the NBER paper's findings.

According to the study, the very things one would expect such a debt-relief program to achieve — improved financial security and mental well-being, for instance — haven't materialized.

Drawing on data from the non-profit RIP Medical Debt (now Undue Medical Debt) — the organization behind most of the current medical debt relief efforts around the country — the authors evaluated the effects of debt forgiveness on 83,401 people between 2018 and 2020.

They found that medical debt forgiveness provides "no improvements in financial well-being or mental health from medical debt relief, reduced repayment of medical bills, and, if anything, a perverse worsening of mental health."

That's an astoundingly poor outcome for a set of programs which, collectively, cost taxpayers billions of dollars.

Why might debt forgiveness actually discourage medical bill repayment?

The authors suggest that "[i]f persons who receive debt relief expect additional debt relief in the future, they will be less likely to pay future medical bills" — a dynamic which makes perfect sense, in retrospect.

As for the mental health consequences of these reforms — perhaps the most baffling finding — the authors speculate that the policies "may have worsened mental health by raising the salience of recipients' financial deprivation without meaningfully addressing their underlying economic situations."

In short, even relatively straightforward government interventions in the healthcare system like public medical debt relief can backfire, leaving patients and taxpayers no better off —and potentially worse off.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). 

https://www.newsmax.com/sallypipes/pennsylvania-nber-shapiro/2024/05/07/id/1163781/