Opinion: Medical debt is cheaper and easier to forgive than student-loan debt

What if you had to choose between paying for groceries or paying medical bills?  What if 80 million Americans were in the same boat?  What if that choice could go away for pennies on the dollar?  

The statistics are staggering. In March of 2022, the Kaiser Family Foundation reported that 4 in 10 adults currently have debt due to medical or dental bills. Half of those with debt owe more than $2,500, and 12% owe more than $10,000. Total medical debt in the United States is upwards of $195 billion.

The consequences are real as well: 48% of medically indebted adults used up all or most of their savings, and 40% reported getting a second job or working extra hours. Eighty percent reporting skipping or delaying care or medications due to cost.

Here in Colorado, the most recent estimate from 2021 is that 733,000 Coloradans have medical debt in collections. Assuming all of them are adults, that works out to about 1 of every 6 adults in the state. The median debt is $748. All of that translates to hundreds of millions of dollars in medical debt that Coloradans are carrying on their collective shoulders.

Philanthropists and governments alike appear increasingly poised to tackle this issue. RIP Medical Debt is the leading non-profit that has developed a model for medical debt forgiveness. They use donations to buy debt in bundles and then send letters to the individuals to whom the debt belonged to let them know that their debt has been canceled and any credit score implications removed. They estimate that every $1 allows them to purchase $100 of debt.

Philanthropist MacKensie Scott recently donated $30 million toward the work that RIP Medical Debt is doing. In November, the city of Toledo passed legislation to put $800,000 of American Rescue Plan funding towards relieving up to $200 million in medical debt for its residents. 

Should Colorado consider the same?  What could state or local efforts look like? The Polis Administration has made health care affordability a key priority, and for good reason. Perhaps while the state attempts to turn the tide more broadly, debt forgiveness could provide immediate relief to almost 1 in 6 adult Coloradans burdened by medical debt. As we head into the legislative season, it seems worth considering. 

To be sure, there are good questions to be asked about the second-order implications. If it’s done just once, what about people who go into medical debt in the future?  If it’s done on an ongoing basis, will that disincentivize people who are able to pay from doing so?  Does it further enable flaws in the health care system? These are legitimate points that deserve consideration in the development of any policy or legislation. 

The Biden Administration had to weigh many of these same issues and ultimately decided that on balance, it was worth forgiving $500 billion in student loans. There are two reasons that forgiving medical debt is an easier call than that decision. 

First, one counter-argument to student loan debt forgiveness is that people who take on student loans do so willingly. This is debatable given the income disparities between people who do and don’t have college degrees, but there is merit to that consideration.

Medical debt, however, is fundamentally different. No one chooses to have their newborn spend a month in the NICU. No one chooses to have a rare genetic disease. The entire concept of health insurance is based on the notion that we are all subject to time and chance and that our best financial defense is pooling our risk. 

Second, the medical debt at issue is debt that has gone, or would potentially go, to a debt collector. Essentially, the health provider has determined that it’s better to get a few pennies for every dollar of uncollected debt than to continue to chase it.

Meanwhile, the debt collector assumes that if they buy the debt for say, three cents on the dollar and are able to collect five cents on the dollar, it’s worth their time. Unsurprisingly, that also gives them every incentive to use aggressive collection methods. Yet because of this system, debt is available to be purchased either from health-care providers or the secondary debt market far below its initial value, making it significantly  less expensive, dollar-for-dollar, than student loan forgiveness.

And while American medical debt may feel inherently modern, debt forgiveness is rooted in ancient traditions as well. A 1999 statement by the United State Conference of Catholic Bishops supporting debt forgiveness on a global scale reminds us:

“In the Hebrew Scriptures, the jubilee was to be a time to free slaves, to return land to its rightful owners, and to forgive debts… Jubilee called for a fresh start for the poor, an opportunity to reestablish justice and equity.” 

Justice and equity are hard fought and hard won, but maybe just this time, they are also a bargain.

Emily Eelman, of Denver, was chief of staff for the Colorado Department of Health Care Policy and Financing from 2019-2022, and also previously served in the Health Division of the White House Office of Management and Budget.