What’s Driving U.S. Medical Debt?

Medical debt is a significant and growing problem for Americans. According to Forbes, American medical debt may total as much as $1 trillion when accounting for credit card balances and unpaid medical bills that haven’t yet hit consumers’ credit reports.

And it’s more common than you may think. Half of all Americans now carry some medical debt. One in ten U.S. citizens carries more than $250 worth of debt, and 3 million Americans owe more than $10,000.

What’s driving that debt? Several factors make medical debt so prevalent and hard to manage. Below, we explore a few of the most common causes.

The Unpredictable Nature of Health Conditions

The conditions that cause the most catastrophic health costs are often unpredictable by nature. These include car accidents and cancer diagnoses — events typically unexpected and challenging to prepare for financially.

Unfortunately, unexpected care also tends to be the most expensive when it comes to healthcare costs. For instance, the National Cancer Institute estimates that the average cost of medical care and drugs tops $42,000 in the year following a cancer diagnosis. Even if those patients are covered by insurance, they can still expect to pay thousands out of pocket.

Rising Insurance Premiums, Co-Pays, and Deductibles

According to the National Bureau of Economic Research, premiums for employer-provided health insurance plans have risen 59% since 2000, far outpacing wage gains. On average, Americans spent 11.6% of their income on health insurance in 2020, up from 9.1% a decade earlier.

And while health insurance costs stayed mostly flat in 2022 — with an increase of just 1% — it’s likely that we will see significant price hikes in 2023 as inflation reaches the healthcare sector. 

Overall, Americans are spending more and more on healthcare costs. So, even if a health insurance plan covers them, they may still be unable to afford adequate care.

Lack of Transparency Around Healthcare Costs

The structure of health insurance makes it difficult for patients to estimate final healthcare costs. There is no menu at the doctor’s office or hospital, and there are no standardized prices across common procedures. In fact, prices for routine healthcare can vary significantly across the U.S. and even within a given geographic region.

There has been a recent push for more transparency, with hospitals required to provide clear, accessible pricing information online. However, this does not extend to private practices, and especially in a hospital environment, patients often don’t have the time or ability to comparison shop for better prices before agreeing to undergo — and pay for — care. 

Billing Errors and Disputes

Even if a patient is covered by health insurance, they’re not guaranteed that their claims will be correctly filed or completely covered. According to the Centers for Medicare and Medicaid Services, 30% of claims are denied, lost, or ignored.

These billing errors and disputes often happen behind closed doors, without patient notification. As a result, patients don’t always immediately know when an insurer denies a claim or is late in paying a provider — they only see the significant costs passed on to them.

Hard-to-manage medical debt can lead to financial troubles for patients, including bankruptcy and poor health outcomes. Research shows that people with medical debt are more likely to experience health issues such as high blood pressure, poor mental health, and shorter life expectancy.

To learn more about the prevalence of medical debt and its implications, check out our infographic: “Understanding Medical Debt: An Economic Millstone Around America’s Neck.”