Archive for August, 2022

Is Medical Debt Different from Educational Debt


Recently, there has been much media attention about educational debt forgiveness. Like most issues of this type there seems to be much political posturing around the topic.


Interestingly, several weeks ago NPR and The Kaiser Family Foundation (KFF) along with several national television outlets reported on how the health care system “is systematically pushing patients into debt on a mass scale.” The topic of educational debt seems to have grabbed the headlines away from medical debt.


According to an internet website, student loan debt is nearly $1.75 trillion, owed by approximately 48 million Americans, 4.7% are delinquent and the average monthly payment is $300.


With significantly less robust accounting, medical debt is estimated at $195 billion as of 2019. It will be difficult to estimate new debt levels post COVID because many peoples’ employment was impacted and most health insurance coverage is tied to employment. While proportionately much smaller than educational debt, health care debt seems more consequential on peoples’ financial conditions. According to a KFF poll, “half US adults don’t have the cash to cover an unexpected $500 bill.” While the dollars are smaller, the estimated number of people with medical debt is estimated to be more than 100 million people or more than double the number with educational debt.


Supposedly, politicians attempted to solve an ever-growing issue related to health care with the passage of the 2010 Affordable Care Act. An interesting unintended consequence, however, were record profit levels for hospitals according to the Medicare Payment Advisory Committee. And at the same time debt levels soared.


Let’s make some quick comparisons between medical and educational debt. First, many will argue medical care is a right and higher education is a privilege. Medical debt typically results from the provision of medical treatment in excess of medical insurance or in some cases the lack of insurance or financial resources. Educational debt is entirely based on choice, access to cheap debt and inadequate financial resources to repay the loans.


Interestingly, educational debt is looking and acting more like the subprime mortgage debt crisis and the related 2008 housing crash than health care debt. In fact, the only aspect lacking to complete the comparison is a government bailout. Will a government sponsored program of educational debt forgiveness initiate the demand for the same for health care debt? Enter the concept of moral hazard. What will the long-term impact of a debt forgiveness program be on the higher education system? Might this be the tipping point for those supporting socialized medicine?


For a number of years, the education and health care industries have shared notable factors placing both in economic peril. Most significant is the unabated rise in costs in both industries,  both rely heavily upon various forms of government subsidies, both are provided significant tax benefits, and neither face any type of challenge from foreign competition. These factors have resulted in bloated budgets and unquestioned waste in both industries. Both industries are critical to the US infrastructure but long-term viability under the aforementioned structures present significant challenges.  Conventional output and productivity measurement have proven very difficult to implement. Employers in the case of health care and lenders in the case of education are feeling similar financial pressure.


On the surface today, there’s seemingly no connection between these two industries but inevitably attempting to fix one will impact the other because both are on very slippery financial slopes.


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