What if canceling people’s medical debt doesn’t help them?

A shocking new study suggests medical debt relief didn’t do much to improve patients’ finances or health.

Four in 10 Americans carry some kind of medical debt, an affliction that is unique to the United States among wealthy nations. The country does not guarantee medical insurance to everyone, and the costs even to people who carry coverage are much higher on average than they are for patients in the rest of the developed world. It’s a fundamental flaw in the design of the US health care system.

Those debts weigh on the people who carry them: Research has found that people who incur substantial medical bills (after a cancer diagnosis, for example) report cutting back on everyday spending, depleting their savings, and even downsizing their homes. Medical debt is associated with poorer general health, as well as higher rates of cancer, heart disease, and overall mortality. People end up sicker because they can’t afford their health care.

In the absence of politically difficult health care reform, activists and some state and local governments have set up medical debt relief programs, purchasing the debts of people in difficult financial circumstances for much less than face value and wiping them out at no cost to the patient.

But a new study of medical debt relief by a group of top economists has called its value into question. Participants who had their debt erased did not see their mental or physical health or their access to credit improve much after debt relief. There was even evidence that some people felt more depressed.

“It would be great if we could improve people’s mental health, we could ease their finances, we could get them to go to the doctor more often by buying debt for less than a penny on a dollar,” Francis Wong, a University of Munich economist who co-authored the study, told me. “But it just didn’t work.”

The findings stunned the researchers. While it might still be premature to discard medical debt relief based on one study, the research raises important questions about the limits of debt relief, and about how to use finite government and philanthropic resources to alleviate high health care costs.

One lesson of the paper may be that relieving debt long after it’s accrued is ultimately a Band-Aid on the structural problems within US health care. Many people with medical debt are contending with other financial problems compounded by their health expenses, which are not easily undone by eliminating hospital bills. Preventing medical debt in the first place may be more effective.

“The punchline for me is that you really need to tackle the root cause that created all of these issues in the first place, that created the financial distress and poor mental health,” Wong said. “That’s a matter of addressing the holes in the American health care system.”

Medical debt relief didn’t do much to improve people’s finances

The research team — including Wong, Harvard’s Raymond Kluender, Stanford’s Neale Mahoney, and UCLA’s Wesley Yin — was commissioned to study a group of 83,400 people who collectively had $169 million in medical debt relieved through the organization RIP Medical Debt (recently renamed Undue Medical Debt). The study analyzed two groups of patients: one had held their debts for seven years on average, the other for a little more than a year. Using surveys and financial data, the experiment tracked most patients for about a year after they received debt relief.

Compared to patients who did not have their debt wiped out, the researchers found, the relief had negligible effects on participants’ access to credit and other measures of financial well-being. Credit scores increased by a marginal 3.6 points on average, though for people whose only debt had been medical debt, there was a more sizable 13.4-point increase. The average increase in credit limits was just $342.

Participants whose debt was relieved actually became less likely to pay future medical bills, the study found. The results showed no improvements in objective and subjective measures of financial distress.

One reason may be that although participants had an average of $2,167 in debt relieved, they had plenty of other, non-medical debt. The group averaged $28,000 in debts including things like credit card balances and car loans. An average of $4,000 in bills had already reached collections.

“The most striking thing to me was just how much financial distress that folks with medical debt are experiencing broadly,” Kluender said. “The debt relief that we were able to execute through the experiment was insufficient to address their financial deprivation.” People in medical debt are often pestered by collectors and forced into even more debt to pay their bills and cut their spending on necessities such as food and rent.

People did not report feeling happier or healthier after debt relief

The study also found that measures of depression, stress, anxiety, subjective feelings of well-being, and general health barely budged after debt was wiped out.

One finding is especially telling. Before the experiment began, the authors asked a panel of 45 experts what they expected the study to find. Panelists anticipated on average a 7 percentage point reduction in the number of patients reporting moderate or worse depression. Instead, the study showed a 3.2-percentage point increase in patients reporting that they were depressed. That’s on top of the 45 percent of participants who reported having at least moderate depression before the experiment began.

The worst mental health effects were found among the 25 percent of participants with the most medical debt: They experienced a 12.4-percent increase in depression along with “worsening of anxiety, stress, general health, and subjective well-being” after debt relief.

“That’s just staggeringly high rates of poor mental health,” Wong said.

How can that be? One possibility is that the relief came too late to undo the severe mental health burden of carrying debt for months or years. Such patients have “already been scarred by the collection process,” Mahoney told me, and will continue to struggle with non-medical debts.

“That’s the sort of person who on a weekly basis is getting hounded by debt collectors, not just sort of the medical debt collectors that we study, but debt collectors of all sorts,” Wong said. Medical debt relief “really doesn’t do anything to alleviate any of those other conditions, not to mention whatever health condition led them to incur medical debt in the first place.”

The researchers identified another plausible theory through a sub-experiment included in the study, which tested the reactions of patients based on how they were informed of their debt relief, either by phone call or by letter. Among the people who received a direct phone call to let them know, the negative mental health effects were greater.

Prior research has found that Americans tend to feel shame and stigma when receiving charitable or government aid to pay their bills. Participants had not requested debt relief, the study noted, but rather had it purchased and wiped out by RIP Medical Debt without their prior knowledge (this is often how medical debt relief programs work). It’s possible that the very act of filling out the study’s surveys may have affected how the respondents perceived their own situation.

“We’re reminding people of this unpleasant experience that they had,” Kluender told me. “And maybe they were going through some unpleasant negotiations with their insurer or they feel a lot of guilt and shame about being unable to pay the bill.”

What do we do with this information?

The disappointing findings are especially surprising in light of research on relief programs for other types of debt, like credit card debt and student loan debt, that has found improvements in financial health and job prospects. Medical debt, like those other types of debt, has been associated with worse health and a weaker financial situation.

But medical debt has some distinct characteristics. Repayment rates are much lower than they are for student loans or mortgages. Once a medical bill reaches collections, it’s often resolved with a negotiated settlement, which can result in much lower payments than what the patient originally owed.

So the study participants, who had carried their debt for more than a year at a minimum, may have already been subconsciously writing off the medical debt by the time relief came, the authors said. That limits the impact they may feel when it’s wiped out.

Some experts not involved in the study think the findings may understate the benefits of medical debt relief, especially on people’s finances, based on earlier studies of medical debt relief that had found larger benefits for people’s credit scores and credit access.

The effect on credit scores is increasingly a moot point, however. Credit agencies have agreed to stop reporting most medical debt on people’s credit reports, after urging from the Biden administration, a step taken in the midst of the experiment. (The study relied on a subset of people whose debt was relieved prior to that announcement.)

Amy Finkelstein, a leading researcher on health care costs at MIT whose nonprofit J-PAL North America helped fund the study, said she was shocked by the results but grateful to have them. Part of the difficult work of policymaking is to soberly assess the results of what you are doing.

“Yes, it’s disappointing. But another way of saying it is: This was true whether or not we had done the study,” Finkelstein told me. “So it’s good to know so that we can try to learn from it and move on.”

Everybody I spoke to agreed on one thing: Preventing people from accruing medical debt in the first place would likely be more effective in improving their finances and health than relieving debts after the fact. One-time debt relief may not make it any easier or less stressful to access health care in the future, but providing people with health coverage that eliminates the risk of debt does.

That hypothesis is supported by existing evidence. The Oregon Health Insurance Experiment, a totemic work in health care research, found that low-income adults who received Medicaid saw a 9 percent reduction in depression. They were also less likely to end up in debt because of a medical bill and less likely to take out loans or skip payments on their other necessities to cover their health care balance.

Experts I spoke to named more robust interventions that could lead to less medical debt and better health and financial outcomes, including more generous insurance benefits for people already covered.

Covering the 26 million Americans who remain uninsured would be another step. Most states in the Deep South still haven’t expanded Medicaid under the Affordable Care Act (ACA), leaving millions of low-income people without coverage. Other proposals, such as more public insurance options, have gained increasing support among Democrats.

“As a consumer advocate, the best solution would be single-payer, Medicare for all,” Chi Chi Wu, an attorney with the National Consumer Law Center, said.

But major overhauls are easier said than done. The history of US health care reform is one of a country inching toward universal health coverage: Medicare and Medicaid passed in the 1960s, and the ACA didn’t come along until 2010. Our byzantine insurance system with weak cost controls persists, with a massive health care industry invested in maintaining the status quo.

In the meantime, experts said, policymakers could focus on making sure that hospital financial assistance programs are accessible to more people. Many patients are eligible for aid that would significantly reduce what they owe — but they often have no idea it’s available. The New York Times reported in 2022 that some hospitals were making it extremely difficult for eligible patients to find out about and use assistance programs, while aggressively seeking payment even from patients who should qualify for aid.

The long-term project of universal health care continues. The debt relief study, disappointing as its results might be, may spur some fresh thinking about how to better help people.