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Image for Medical Debt and Health Insurance Costs and How Those Could Relate to Home Prices

Medical Debt & Health Costs Biting Budgets

As these costs rise, home purchasing power declines. What impact will these costs have on homebuyers?

More Americans are struggling to pay off medical debt, recent studies show, and for many households, this may impact the bottom line when it comes to budgeting for the rest of life’s expense, including housing. To add context, in total, the CFPB estimates a total of $88B in medical debt exists across the U.S (as of 2/22).

Meanwhile, the average U.S. monthly cost of health insurance is $644/month for individuals and $1,851/month for families. And where a potential homebuyer lives can impact what they pay in policy premiums. For example, in states like West Virginia, South Dakota, Wyoming and Vermont, a 40-year-old applicant on a silver plan averages $9K+ annually.

Who Is this Medical Debt Impacting?

An estimated 41% of Americans are currently faced with some sort of medical debt, with 44% reporting that their bills tally $2,500 or more, according to a recent report from the Kaiser Family Foundation.

Moreover, 63% of those who have shouldered medical debt in the last five years said it caused them to cut spending on essentials like food and clothing. Nearly half said they used up all of their savings to pay off their debt.

With Medical Debt So Prevalent, It Stands to Reason the Housing Market Could Be Negatively Affected

For those faced with unpaid medical bills, there might be no other option but to put off purchasing a home or making a move or slashing your house budget in order to do so.

For some, it can be even more dire. People with medical debt are two to three times more likely to miss rent and utility payments, and to be evicted than those without health care bills mounting, according to a 2021 Stanford study.

Impact on the Housing Market May Be Starker as Medical Debt Hits Millennials the Hardest

According to a recent Lending Tree survey, Millennials ages 26 to 41 comprise 30% of those who report carrying medical debt, the largest contingent in the generational breakdown. With 43% of homebuyers now Millennials – the most of any generation, according to NAR – we could see the average spend on housing fall, especially as high interest rates continue to exacerbate affordability.

But Private or Marketplace Health Insurance Coverage Should Limit These Concerns, Right?

And lest you assume that private or marketplace health insurance solves these concerns, studies show that with co-pays, deductibles and out-of-network fees, insurance does not solve the problem. According to a co-author of the Stanford study, “The price of health care keeps on rising at dramatic rates and that has to do with provider consolidation and mergers and acquisition. That really hasn’t been shown to benefit health outcomes,” Wes Yin, an economics professor at UCLA told Axios, and it’s leaving households vulnerable to real financial insecurity.

Beyond that, in 2020 U.S. healthcare spending reached $4.1T, which amounts to an average of $12,500/person. And the outlay is only getting worse when looking at health expenditures as a percentage of GDP from 1960 (5%) to 2021 (18%).

OK, So Those Healthcare Costs Have Increased, But What about the Deductibles?

Well, those have nearly doubled too in the last 12 years. In 2010, the average annual deductibles were $917 while in 2022 that figure rose 92% to $1,763 (for employer-sponsored health insurance plans in the U.S.). And, if you’re thinking, “Well, inflation may be the root cause for that!” The answer is a resounding ‘no’ as $1 in 2010 is worth $1.35 in 2022 for an increase of 35% vs. 92%.

What This Could Mean for the Housing Market?

With health-care costs and medical debt burdening so many Americans, it’s reasonable to consider the impact it may have on housing. Will a significant portion of would-be homeowners reconsider their next move, opting to rent instead of buy? Will those in the market for a new home reduce their spend to help manage their debt? And how much would those two factors impact the housing market as a whole? As always, it’s a hypothesis game, and speculation abounds, but a reasonable determination would point to: yes, these costs, as is, will put a crimp in the homebuyer pipeline and reduce housing prices by negatively impacting mortgage demand.