These 5 charts explain why younger Americans spend less on health care but have higher medical debt

Young adults spend significantly less on medical bills, but tend to rack up larger amounts of medical debt than older adults, according to a study published Wednesday in Health Affairs—a trend that research suggests reflects differences in insurance coverage and financial resources.

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Study details

For the study, researchers examined anonymous credit report data on more than four million U.S. residents whose medical bills were sent to a U.S. collections agency in 2016. The researchers sought to determine whether the age profile of people with medical debt was similar to the age profile of health care use, and if not, what factors could explain the gap. The researchers defined medical debt "as unpaid medical bills in collections," while medical collections were defined as "outstanding bills that have been reported to a nationwide credit reporting agency as a collection."

Key findings

Overall, the researchers found about 16% of U.S. residents' credit reports included medical debt. This added up to more than $81 billion in medical debt. The researchers found that the share of consumers who had at least one new medical bill in collection in 2016 was highest among 27-year-olds, at 11.3%. The researchers found 27-year olds also had the highest median size of medical debt, at $684.

The researchers found the median amount of medical debt declined with age, dropping by 39% between those ages 27 and 64. Further, the frequency of having medical debt fell by nearly 54% between those ages 27 and 64.

However, while medical debt decreases with age, medical spending increases as people grow old, the researchers noted. According to the authors, medical spending grew fivefold between age 28 and age 64.

Not surprisingly, the authors found that higher uninsured rates and lower household income were both associated with increases in medical debt. An increase of one standard deviation in a county's insurance rate was associated with a $53 per-capita increase in medical debt sent to collections. A 1% increase in median household income was associated with an $89 to $94 increase in all collections—medical and otherwise.

The authors noted most medical debts "were moderate size." The authors wrote, "Even in counties with high uninsurance rates, more than 45% of consumers with a medical collection in 2016 had an annual total of less than $600."

Discussion

In their discussion of their findings, the authors wrote, "Despite a marked increase in health care spending, the frequency and size of medical collections decrease substantially with age."

On the one hand, the authors acknowledged, household financial resources and insurance coverage are "[n]atural candidates to explain the disconnect between medical spending and debt."

However, they also noted that "[t]he age profile of medical debt raises some questions." For instance, while insurance dropped by 30% from age 27 to 45, the number of consumers who faced new debts dropped by only about 10%.

Other studies have shown that younger Americans may have a higher number of medical bills due to poorer financial knowledge. A study by the Urban Institute found that adults with greater financial knowledge are less likely to have past-due medical debt, even after controlling for a host of other factors including income, health insurance status, disability status and other social and demographic factors.

The same report also found that younger adults' wealth are stagnating compared to previous generations. When comparing the wealth of certain age groups in 2013 with the wealth of the same age group 40 years prior, they found that younger Americans are not faring much better than the previous generation. This stagnation, coupled with the rising inflation of the same time frame, could mean that younger Americans have less of a financial buffer to protect them from unplanned medical events (like a trip to the ED).

Ways to fix the trend

Given that younger adults have lower medical spending than older adults but are more likely to have medical collections, the Health Affairs authors said "policies that promote insurance coverage for younger adults may have the greatest effect on reducing medical collections." One commonly cited policy change to advance this goal would be to increase the permissible ratio of insurance premiums between older and younger patients for plans sold on the Affordable Care Act's from the current three-to-one ratio to five-to-one, the Health Affairs authors noted.

They continued, "If policymakers are committed to the provision of insurance with substantial cost sharing ... reducing medical collections would require policy efforts to increase funds available to pay bills—either by increasing after-tax incomes or by promoting savings" (Baker, "Vitals," Axios, 7/26; Batty et al., HealthAffairs, 7/25; McKernan et al., Urban Institute, 3/1/2017).

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