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Medical Debt is Contagious – How Not to Catch It

Medical equipment and money on a blue background, signifying the financial burden of medical debt

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Credit Sesame reviews a new medical debt survey by KFF.

The cost of health care is so high that a medical issue can become a lingering financial problem. A recent survey by the non-profit health research organization KFF found that just over four out of every ten American adults have medical debt. 

This debt adds a range of different hardships on top of the difficulty of dealing with a medical condition. This article looks at the scope and impact of health care debt, and then make some suggestions for how you can avoid it. 

Millions of Americans struggle with medical debt

Medical debt has become a problem that touches most Americans sooner or later. Though it affects some groups more than others, its hardships have a broad reach: men and women, rich and poor, young and old and across all areas of the country. 

The KFF Health Care Debt Survey polled over 2,000 adults. It focused on their experiences with medical or dental bills they couldn’t immediately pay, and what impact that had on their lives. 

Here are some of the key findings of the survey:

  • 41% of adults currently have debt caused by medical or dental bills.
  • In addition to that 41%, another 16% of adults have had debt due to medical or dental bills in the past five years. So, a total of 57% either have medical debt now or have had it in the recent past.
  • 24% of adults say they currently have medical or dental bills that are past due or that they are unable to pay.
  • More than half of low-income adults have health care debt. 57% of adults with household incomes under $40,000 say they currently have this debt. 
  • Even having a relatively high income may not shield you from health care debt. 26% of those with household incomes of $90,000 or above said they had debt from medical or dental bills.
  • Health care debt affects women more than men. 48% of women said they have this debt, compared to 34% of men. 
  • Health care debt is most likely to strike people between the ages of 30 and 49. 52% of this age group have health care debt. 
  • Even young adults are not immune to health care debt. The survey found that 40% of people aged from 18 to 29 had this debt.
  • Health care debt is especially prevalent in the South, where 48% of adults reported having it. It is less common in the Northeast and the West, where 35% of adults said they had health care debt. 
  • The quality and availability of health insurance matters. Health care debt is more prevalent in the twelve states that have not expanded their Medicaid program under the Affordable Care Act. 
  • Among people with health care debt, 72% said it was due to a one-time event, as opposed to bills that built up over time due to ongoing treatments. 
  • Many people are vulnerable to going into debt due to even a relatively minor medical event. Roughly half of those surveyed said they wouldn’t be able to pay a $500 medical bill without borrowing money.

Behind all those statistics is a whole lot of personal pain. Not just the kind of pain that comes with the medical problems themselves, but the sacrifices and hardships endured by trying to pay for treatment.

You may not be able to completely avoid medical debt, but there are things you can do to minimize it – and the pain it causes.

Borrowing adds to the cost

Health care is expensive enough. If you go into debt to pay for it, that only adds to the cost. 

Adding interest payments to the cost of the care you received prolongs the repayment period and raises the total cost. 

Since health care debt often stems from an unexpected event, a credit card may the most immediate source of funds available to pay for it. 

Credit card debt is especially expensive. Based on credit card interest rate data from the Federal Reserve, using a credit card to pay a medical debt would add $161.70 per year to every $1,000 in unpaid debt. 

If bad credit requires you to pay an above-average interest rate, that cost would be even higher. If you fall behind, late payments can also add to the expense. 

In other words, paying a medical bill with a credit card may seem like the only solution available at the time. However, that solution can soon turn into part of the problem. 

Health insurance can be worth the investment

If you’ve shied away from buying health insurance because you don’t think you need it, give the numbers another look. 

Even 4 in 10 young adults have medical debt. It often occurs due to an unexpected event, not when people know they’re unhealthy. 

Compared to the cost of medical bills and the added expense of going into debt, health insurance seems like a bargain. 

However, it’s only truly a bargain if you choose wisely. Look beyond cost. Often the plans with the lowest premiums have high deductibles and low coverage ceilings or other limitations. 

Emergency funds help preparedness

The fact that half of survey respondents don’t have enough cash available to handle a $500 expense is a reminder of the value of emergency funds. 

Building up a reserve of savings is a great way to be prepared for an unexpected medical expense. Being able to pay your bills in full instead of having to go into debt can save you a lot of money in interest charges and other borrowing expenses. 

Keeping credit in shape broadens your options

You can also prepare for the unexpected by keeping your credit history in good shape. 

If you have to borrow to pay a medical bill, having good credit can give you less expensive options than paying with a credit card. 

It also helps if you aren’t already overextended with debts that limit further borrowing. 

Being able to tap into other options like a home equity or personal loan can be cheaper than borrowing on a credit card. 

Also, whichever type of borrowing option you choose, the better your credit the lower your interest rate is likely to be. 

As the saying goes, an ounce of prevention is worth a pound of cure. The best things you can do to protect against health care debt should be done before you even know you are going to have medical expenses.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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