Introduction

In 2013, total national healthcare spending reached a whopping $2.9 trillion dollars, slightly more than the Gross Domestic Product (GDP) of France. That amounts to $9,255 for every person in America, or 17.4 percent of total U.S. GDP. While the median income has remained stubbornly frozen just above $50,000 a year, health insurance premiums continue to increase, although that growth has slowed somewhat since the passage of The Affordable Care Act. In addition, Americans are still coping with large out-of-pocket costs: in 2015, average out-of-pocket costs were $1,300. Out-of-pocket costs for the whole nation hit $416 billion in 2014, up from $277 billion in 2008. They are projected to reach $608 billion in 2019.

The result is that in 2014, 64 million people were struggling with medical debt, the leading cause of bankruptcy in the United States. One study estimates that medical debt accounted for 62 percent of bankruptcies in 2007, an increase from 46 percent in 2001. A cross-national study finds that Americans are more likely than residents of other high-income nations to skip necessary healthcare to save costs. For example, 37 percent of Americans went without care to save costs, compared to just 4 percent of those living in the United Kingdom. In addition, 23 percent of Americans reported difficulty or inability to pay their bills, compared with 6 percent of those living in the United Kingdom. The survey finds 41 percent of Americans reported paying more than $1,000 out of pocket (in addition to premiums), compared to only 3 percent of people living in the United Kingdom.

The Affordable Care Act has expanded access to health insurance and worked to contain costs. It expanded dramatically the number of preventative services that have to be provided without co-pay, including HIV screening for high-risk adults, birth control and tobacco cessation interventions. There is also evidence that the Affordable Care Act has slowed the growth of premiums and healthcare costs. As Chairman of the Council of Economic Advisors Jason Furman writes, “The average worker contribution to family coverage in 2014 was about $900 below what it would have been had growth matched the 2000-2010 trend.” The Commonwealth Fund finds that the Affordable Care Act has reduced the share of working-age adults who reported trouble paying their medical bills from 75 million in 2012 to 64 million in 2014. The number of people forgoing care because of cost dropped from 80 million in 2012 to 66 million in 2014.

However, even the insured face a large risk of accruing medical debt. A recent survey finds that 26 percent of Americans between 18 and 64 reported problems paying medical bills, though the uninsured were far more likely to report difficulty (53 percent) than the insured (20 percent). However, of those who had medical debt, only a third were uninsured, indicating that a large share of the population with medical debt is insured. Of those with debt, 44 percent reported that it had a “major impact” on their family, with no difference between those who were insured and uninsured. A third of those with medical debt reported struggling to pay for basic necessities (food, heat or housing) because of their medical bills, and here too, there were few differences among those with insurance.

To gain a better understanding of how medical debt impacts families’ debt and assets, Demos commissioned two national household surveys of low- and middle-income households with credit card debt. These surveys, conducted in 2008 and 2012, consisted of phone and online interviews with low- and middle-income households carrying debt. They collected information about the scope and nature of credit card debt—from the amount and duration of debt to the types of expenses that contribute to household indebtedness. The samples of the surveys were weighted so that they could be compared across 2008 and 2012. By 2012, when the survey was taken, at least 44 of the 90 major provisions of the Affordable Care Act had taken effect, including the provisions to let young people stay on their parent’s insurance and mandatory coverage of preventative benefits on all plans. By 2012 all the major provisions of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) were in force.

Key Findings

In the first term of Barack Obama’s presidency, he signed two major pieces of legislation: the Patient Protection and Affordable Care Act, and the CARD Act. Both of these laws have the potential to dramatically affect Americans’ medical debt and their ability to manage it. To gain a better understanding of how medical and other credit card debt impacts families, Demos commissioned national household surveys in 2008 and 2012 analyzing low- and middle-income households with credit card debt.

In 2012, 47 percent of indebted low- and middle-income households reported that medical expenses contributed to their credit card debt. We find:

Among low- and middle-income households with medical debt on their credit cards, both overall debt levels and levels of debt stemming from medical expenses fell between 2008 and 2012. Among those with medical debt on their credit card, average total credit card debt fell from $11,019 in 2008 to $8,762 in 2012, a 20 percent decline. Medical debt alone fell from $2,055 in 2008 to $1,679 in 2012, an 18 percent decline.

Among those with medical debt on their credit card, average total credit card debt fell from $11,019 in 2008 to $8,762 in 2012, a 20 percent decline. Medical debt alone fell from $2,055 in 2008 to $1,679 in 2012, an 18 percent decline. Medically indebted households struggle with more credit card debt overall. On average, medically indebted households had $8,762 in credit card debt, compared with $5,154 for households with credit card debt that did not stem from medical expenditures.

On average, medically indebted households had $8,762 in credit card debt, compared with $5,154 for households with credit card debt that did not stem from medical expenditures. Households carrying medical debt on their credit cards are more strained financially. Households with medical debt on their credit cards were dramatically more likely than households with credit card debt stemming from non-medical expenditures to report using their credit card to pay for basic expenses, such as rent or groceries, because they didn’t have enough money in their checking or savings accounts (52 percent versus 29 percent).

Households with medical debt on their credit cards were dramatically more likely than households with credit card debt stemming from non-medical expenditures to report using their credit card to pay for basic expenses, such as rent or groceries, because they didn’t have enough money in their checking or savings accounts (52 percent versus 29 percent). Medically indebted households have a higher APR on their credit card. Medically indebted households reported an average annual percentage rate (APR) of 16.75 percent, while households with credit card debt but none stemming from medical costs reported an APR of 15.47 percent.

At the time our survey was conducted in 2012, a number of major provisions of the Affordable Care Act had taken effect, including requirements enabling young adults to remain on their parents’ insurance plans and mandatory coverage of preventative benefits on all health plans. The decline in medical debt on credit cards that we observe is consistent with federal studies suggesting that the Affordable Care Act increased insurance coverage and slowed the growth of health care costs. Yet even households with health insurance coverage struggle with medical debt. Demos offers policy recommendations for further reform to address the crushing burden.

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