It’s the kind of case attorney Helen Tran deals with all too often. An Asian-American small business owner came into her office at Neighborhood Legal Services in Los Angeles begging for help with a surprise, five-figure medical bill.

The woman had health insurance. Yet, due to a mix-up caused by misinformation from her insurer, she’d received two chemotherapy treatments from an out-of-network provider that she had believed was in network. This simple mistake ended up devastating her financially.

“The best we could do at that time was negotiate it by half, so she would pay half of it,” Tran told me. “She used all her life savings to pay for it.”

Millions of Americans deal with medical debt daily. According to a recent JAMA study, roughly 18 percent of people in the United States had medical debt in collections. Data shows that collections agencies held $140 billion in unpaid medical bills in 2020. According to the JAMA study, medical debt is now the largest source of debt in collections in the United States.

As with many of society’s ills, the burden of medical debt is not equally shared. Nationally, roughly a third of working-age Black Americans have medical debt, compared to about a quarter of white Americans. Nearly 10 percent of people of color in California have medical debt in collections compared to around 7 percent of whites. Further, the uninsured rate among people of color in California is 13 percent, double that of white Californians, which stands at 6 percent.

As Brianna Wells, author of a report on racial inequity and medical debt explained to me recently, massive unemployment arising from the COVID-19 pandemic has worsened the medical debt crisis, especially in communities of color.

“Disproportionately, Black and Hispanic people (became) unemployed, lost their jobs,” she said. “That could also mean the loss of employer-based health care.”

Research by California’s Legislative Analyst’s Office, a nonpartisan fiscal and policy research agency, backs that up. The office found that roughly 200,000 people lost job-based health insurance coverage in 2020.

But many workers who lost their jobs likely lacked employer-based care from the outset. Although the 2010 Affordable Care Act increased health care coverage, particularly in states like California that expanded Medicaid, approximately 3.2 million Californians are projected to remain uninsured in 2022. The majority (65 percent) of these individuals fall into the state’s undocumented immigrant population. While California has a diverse array of immigrant communities, most undocumented immigrants in the state hail from Latin America. Currently, Latino Californians are more than twice as likely to be uninsured as white, non-Hispanic Californians. This presumably stems from the fact that Medi-Cal, the state’s Medicaid program, excludes many undocumented Latinos, a group also unable to purchase federally subsidized Affordable Care Act plans. Native Americans in California are also disproportionately uninsured; roughly 14 percent of the state’s Indigenous population lacks health coverage. 

Being uninsured leaves people extremely vulnerable to medical debt. They often face high out-of-pocket costs for medical treatment, putting health care out of reach. Even people who have health insurance can end up with crippling medical debt, such as Tran’s Asian-American client. According to the Commonwealth Fund, about 28 percent of working age adults are underinsured, meaning they have health insurance but face prohibitively high out-of-pocket costs like deductibles and co-pays. While the Affordable Care Act helped reduce the financial burden of medical care for some Californians through patient protections, a maximum cap on out-of-pocket spending and premium assistance, the cost of health insurance and medical treatment remains insurmountable for many.

Again, the pandemic has exacerbated this vulnerability as people lose jobs, and, therefore, medical coverage and income to pay for health expenses. Some Californians are also confronting long-term medical costs associated with the lingering effects of COVID-19.

Severe medical debt makes it less likely that people will seek needed health care, further worsening health disparities and perpetuating cycles of poverty. According to a KFF report, about a third of people struggle to pay for needed health care due to their medical debt. Moreover, 43 percent of patients with mounting medical bills delayed receiving a medical test or treatment recommended by their doctor, which can lead to serious and even more expensive health consequences down the road.

Medical debt exacerbates existing inequalities, forcing households to choose between rationing care or cutting back on other vital expenses. About 70 percent of families with such debt surveyed by KFF in 2016 stated that they reduced spending on food, clothing or other basic needs in order to support paying down their debt. Consequently, families burdened with medical debt may struggle to build wealth, access vital preventive care or make long-term investments to improve their quality of life.

And let’s not forget about surprise medical billing. This egregious practice often follows emergency situations in which patients didn’t have the option to visit an in-network provider. It also happens when patients meet with an out-of-network specialist or provider within an in-network medical facility. Roughly two-thirds of American adults worry about the unexpected costs and financial constraints that this form of billing can present. Surprise claims are relatively common, with 18 percent of all emergency room visits and 16 percent of in-network hospital stays resulting in an out-of-network charge.

The good news is that, in late 2020, Congress passed legislation to end surprise billing. Health plans will now be required to cover surprise bills at in-network rates, and out-of-network providers will no longer be able to bill patients exorbitant amounts. The new law is set to take effect in January 2022, as regulators work to finalize the details. In the meantime, people like Tran’s client will still have to wrestle with the consequences of these surprise medical bills.

Medical debt is a persistent issue that affects millions of California residents. Strengthening the ACA, providing increased state-level subsidies and further expansion of Medi-Cal will prove crucial in lowering California’s uninsured rate and alleviating medical debt. Recent state level actions to expand Medi-Cal access and health marketplace subsidies are expected to decrease the number of uninsured and underinsured Californians and curb the fear of potential medical debt.

However, California policymakers can go even further by passing AB 1020 which would enact additional protections against medical debt and strengthen existing legislation that mandates charity care. Under current California law, hospitals are required to provide financial assistance or “charity care” to uninsured and underinsured Californians. Unfortunately, many low-income Californians don’t receive this assistance. AB 1020 would raise the eligibility threshold for charity care and strengthen state agencies’ abilities to enforce existing laws. Further, the bill would limit the ability of hospitals to sell patient debt to third-party buyers, who are incentivized to aggressively pursue debt to generate a profit.

AB 1020 offers one robust solution to the medical debt crisis, but even more must be done. President Biden’s American Rescue Plan (ARP) is a model for federal-level action that can be built upon. It covers 100 percent of health insurance premiums through September of this year for people who lose workplace health benefits. It also increases subsidies for people who purchase insurance through the ACA’s health insurance marketplaces (such as Covered California).

California’s own state Legislature increased subsidies for health insurance in 2019. Continued federal and state subsidy expansion would help more Californians purchase health coverage and reduce the risk of severe medical debt. California’s Legislature should also expand Medi-Cal access to all eligible undocumented adults and build upon the excellent progress that’s already taken place to expand coverage to undocumented young adults in 2019 and elders age 50 and up this year.

Federal and state-level policymakers have made strides in expanding health coverage and consumer protections for low-income individuals. They must continue to go farther if we are to finally eliminate racial health disparities and free communities of color from a major source of crippling debt. As illustrated by the story of Tran’s client, unexpected medical debt can have life-shattering consequences. Her client lost years of savings and the ability to retire due to misinformation from an insurance agent. Unfortunately, stories like this are far too common. It’s time for legislators to step up and protect vulnerable Californians from the financial calamity that can be brought on simply by seeking medical care.

Denzel Tongue writes a column for the California Health Report about the intersection of racial justice, public policy and health equity. He is a master of public policy candidate at The Goldman School of Public Policy and a California Initiative for Health Equity Fellow.