Americans crowdfunding for medical debt is 'insane' — and inefficient, experts find

Crowdfunding for medical debt mainly works for those who need it the least, according to a recent study published in the American Journal of Public Health (AJPH), exposing an inefficient health care system.

“Having to crowdfund for medical bills to begin with I think is insane,” Allison Sesso, executive director of RIP Medical Debt, told Yahoo Finance. “That’s just a clear demonstration that the system is broken. That should not be the norm.”

The AJPH study — which extrapolated data from 437,596 GoFundMe campaigns in the U.S. between 2016-2020 — found returns on campaigns “were highly unequal, and success was low, especially in 2020.” Just 12% of campaigns actually met their goals, while 16% did not receive any donations. In addition, campaigns raised substantially less money during 2020 in areas with more medical debt, higher uninsured rates, and lower incomes.

“It’s a nexus of issues,” Nora Kenworthy, associate professor in public health at the University of Washington, Bothell and co-author of the study, told Yahoo Finance. “We know from previous research, for example, that people in lower-income areas do worse with crowdfunding and people who have less education have similar outcomes. There’s research that’s demonstrated that racial wealth inequities seem to shape crowdfunding outcomes as well among different racial groups.”

U.S. consumers held about $88 billion in medical debt as of June 2021. Americans turn to crowdfunding for a variety of reasons such as an unexpected health-related event, lack of insurance coverage, or deferring their medical bills in order to pay for other essential bills.

'People who have means know other people with means'

The AJPH study highlighted clear economic disparities when it came to those who were successful in their crowdfunding campaigns versus those who were not.

For example, those in the lowest county median income quintile (between $19,264-$47,045) were only able to raise an average of 12.6% of their overall goal versus those in the top quintile ($72,337-$129,588), who were able to get 27.3% of their goal. This did not surprise Sesso.

“It sort of feels intuitive that people who have means know other people with means," she said. "They live in communities with other people with means. When you’re looking to get support, you are going to ask the people that you know, and usually people know people who have similar income levels to them. I’m not terribly surprised, and I find it really unfortunate.”

Many of these crowdfunding lower-income individuals are based out of states that didn’t expand Medicaid, meaning that those caught in the notorious coverage gap are left to pay for their medical bills out of pocket and often find themselves with growing medical debt, which is more common in the Southeastern and Southwestern U.S.

“Those are places where the most vulnerable communities are carrying a ton of health-related needs and probably facing a lot more requests for funding but also have the least capacity to respond,” Kenworthy said.

She added that "if you think about the kinds of places where insurance coverage is lower, where medical debt is higher, those are places where the most vulnerable communities are carrying a ton of health-related needs and probably facing a lot more requests for funding but also have the least capacity to respond."

Racial disparities

Race also plays an unfortunate role in the crowdfunding (and medical debt) space.

A separate report published in July 2021 found that medical crowdfunding campaigns yield inequitable outcomes, “with White crowdfunding beneficiaries receiving higher levels of support than non-White beneficiaries.” The author of the report speculated this could be due to systemic racism that still exists today in the U.S. economy and health care system.

“It’s our history of slavery and I think that continues into lots of aspects of systems, and it includes medical debt,” Sesso said. “It includes indebtedness in general. We have a legacy in the United States of a history of not only slavery but then continued oppression, financially, of Black people. … To know in fact that Black people overall have less means — frankly, I think that’s an intentional element of our system.”

According to data from the Consumer Financial Protection Bureau (CFPB), past-due medical debt is most prevalent among Black (28%) and Hispanic (22%) individuals compared to their white (17%) counterparts. This creates long-term disparities for the two groups, as Black and Hispanic Americans are then penalized with lower credit scores.

"It’s important we think about the predatory approaches to collecting medical debts,” Sesso said. “I do think there should be limitations on what people can do — hospitals or debt collectors — in terms of getting medical debt there. Should it be on credit reports? I’m not sure that’s a good idea. I don’t think people should have their wages garnished. I don’t think people should have liens on their homes. I think there should be some real consumer protections that are paid attention to.”

There are some signs of progress: Starting July 1, three of the biggest credit unions — Equifax, Experian, and TransUnion — will no longer include medical debt in collections on credit reports once it’s paid off. And beginning in 2023, medical debt in collections that’s less than $500 will be excluded from credit reports

Furthermore, the grace period for medical collection debt has been expanded to one year from six months.

Adriana Belmonte is a reporter and editor covering politics and health care policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at adriana@yahoofinance.com.

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