Medical Debt Hurts Black Families Disproportionately—but There's Good News

Though medical debt is a burden that affects the financial prospects of a number of Black families, changes to credit reporting may provide some relief.

Worried parents doing home finances in the living room. Children sitting in the background.
Photo: Getty Images

Medical debt is easy to accumulate and hard to pay off. Unlike other countries that offer universal healthcare, medical debt in the U.S. bankrupts families. A Kaiser Family Foundation report estimates that 100 million adults in the U.S. have more than $10,000 in medical debt.

Black families battle systematic inequality and lack institutional support. They face racism that affects their well-being and are often stuck in food deserts and deal with issues like poverty. This leads to mental and physical health issues that require medical care, and insurance in the U.S. only goes so far.

As a result, Black families tend to be disproportionally affected by medical debt. A March National Consumer Law Center report found that 27.9 percent of Black households carry medical debt compared to 17.2 percent of white non-Hispanic households.

"Medical debt has negatively impacted several of my clients of color," says Natalie Bullen, a financial advisor and CEO of Unapologetic Wealth Management.

"It's tough because of how convoluted our medical system is, and sometimes the debt gets transferred or sold without the client's knowledge. Once they default on certain medical debt, it can negatively affect their credit, causing additional hardship when they apply for loans or other credit products," says Bullen.

Despite the Affordable Care Act bringing some relief for Black families, medical debt remains a crisis that negatively impacts Black communities and ruins opportunities to create wealth.

Medical Debt Can Ruin Your Credit Score

Medical debt adds stress to the already-complicated lives of Black families, and one area it affects the most is a credit score and the ability to grow borrowing power.

Hospitals and medical providers send unpaid bills to collection companies to try to secure payment. When payment is not made, the collection companies report the accounts to credit-reporting firms. The reported medical debt often lowers credit scores and makes it hard to get approved for credit cards, secure loans on affordable terms, and become financially independent.

Collection agencies have used predatory practices in collecting medical debt. Some good news is that credit-score provider VantageScore said it would stop factoring all medical debts that are in collections into the latest versions of its scores.

This move to exclude medical debt follows other major credit bureaus, Equifax Inc., Experian PLC, and TransUnion's taking similar actions. For Black families and all Americans, this news is a welcome relief and an opportunity not to have medical debt affect one's ability to secure loans and credit when needed.

Many believe healthcare is a fundamental right, and medical debt should not be a factor in Black families' inability to get a mortgage, secure a loan to start a business, or let their credit score keep them from renting an apartment.

"It's not fair that you can pay a utility bill for decades and gain no credit for it, but if you switch providers, that can negatively impact your credit," says Brandon Kovach, a government relations consultant who has lobbied for credit scoring reform.

"The credit scoring model is designed to reward people for being in debt, which seems very contradictory to the publicly-stated intention of helping lenders determine a person's credit worthiness. Removing some medical debt reporting is a step in the right direction, but make no mistake, it's far from creating an ethical credit scoring model that would truly reflect creditworthiness," says Kovach.

Narrowing the Wealth Gap and Ending Structural Racism

Black families don't have access to the same resources. Medical debt affecting a credit score took away people of color's opportunity to access the available resources that could help them build a life and acquire wealth in the way American society requires.

Having credit gives Americans the ability to invest in real estate, earn and use credit card reward points, secure an apartment, and have an option if someone's primary source of income is lost.

Medical debt has been a major factor in keeping Black folks from building their credit scores. This news from the major credit bureaus is one way to shorten the wealth gap and help Black families access the same financial resources.

Structural racism in healthcare was a huge part of the Jim Crow segregation plan. Sadly, that legacy persists in the systems and institutions in the U.S., affecting Black people's health and access to healthcare. COVID-19 further exposed the reality of gaps in healthcare, with people of color being more likely to get and die from COVID.

Black families need more changes in how systems are set up and access opportunities to secure credit, build wealth, and live healthier lives.

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