Research Paper: The Effects of Medical Debt Relief: Evidence from Two Randomized Experiments Raymond Kluender, Neale Mahoney, Francis Wong, and Wesley Yin NBER Working Paper No. 32315

Abstract:

Two in five Americans have medical debt, nearly half of whom owe at least $2,500. Concerned by this burden, governments and private donors have undertaken large, high-profile efforts to relieve medical debt. We partnered with RIP Medical Debt to conduct two randomized experiments that relieved medical debt with a face value of $169 million for 83,401 people between 2018 and 2020. We track outcomes using credit reports, collections account data, and a multimodal survey. There are three sets of results. First, we find no impact of debt relief on credit access, utilization, and financial distress on average. Second, we estimate that debt relief causes a moderate but statistically significant reduction in payment of existing medical bills. Third, we find no effect of medical debt relief on mental health on average, with detrimental effects for some groups in pre-registered heterogeneity analysis.

Commentary:

Relief for medical debt alone  perpetuates the assumption that there are some debtors who are innocent and deserving of relief and others,  whether for student loans,  credit cards, etc.,  that are not.

The minimal benefits of medical debt relief on financial outcomes,  credit scores or mental health demonstrates the limits of piecemeal debt forgiveness.  A likely reason being that people burdened with medical debt likely have substantial other financial burdens (with those other debts often resulting from the same health issues as the medical debt). 

This should be remembered for other targeted debt relief,  including student loans,  which might merely divert a debtor's financial resources to other creditors.  Bankruptcy remains,  with the most glaring exception being automatic relief for student loans,  the only real and complete form of debt relief.  

While it would be obviously self-interested to suggest that charities such as RIP Medical Debt  hire private consumer debtor attorneys to file bankruptcies for those in serious financial distress,  it would certainly be reasonable for those to support Legal Aid organizations,  where a $100  contribution could relieve far more than $10,000 in debt.