Panel Paper: Is Financial Knowledge Associated with Past-Due Medical Debt?

Thursday, November 2, 2017
Dusable (Hyatt Regency Chicago)

*Names in bold indicate Presenter

Breno Braga, Signe-Mary McKernan and Andrew Karas, Urban Institute


About half of all debt in collections is medical debt, and nearly one-fifth of all consumers with a credit file have some form of medical debt in collections (CFPB 2014). This prevalence suggests that medical debt could keep families from meeting their financial goals. A clearer understanding of the relationship between medical debt and potential risk factors is especially relevant as the US health care system undergoes major changes. While other research has investigated the relationship between health insurance access and past-due medical debt (Finkelstein, et al., 2012; Mazumder & Miller, 2016), understanding the role of financial knowledge in medical debt dynamics may be especially important because unplanned shocks can require making difficult decisions, and financial knowledge can help consumers prepare for these shocks.


For our analysis, we use pooled data on 41,470 adults from the 2012 and 2015 National Financial Capability Study (NCFS). The outcome variable we examine is a self-reported indicator for having past-due medical debt. To determine the relationship between financial knowledge and past-due medical debt, we rely on two measures of financial knowledge. The first is the number of correct responses to a financial quiz, and the second is self-assessed financial knowledge. We also examine two explanatory variables to measure the relationship between formal financial education and past-due medical debt. The first is a self-reported indicator of whether respondents have ever taken any formal financial education. The second variable is a proxy for whether a respondent attended high school when his or her state mandated high school financial education. We estimate the relationship between past-due medical debt and financial knowledge using regression models that control for individual-level characteristics.


There are two primary results emerging from this work. The first is that financially knowledgeable people are less likely to have past-due medical debt. Individuals who answer four or five questions correctly on a five-question financial knowledge quiz are 7 percentage points less likely to have past-due medical debt than similar individuals who answer zero or one question correctly (p<0.01), even after accounting for differences in health insurance coverage, permanent disability status, and socioeconomic characteristics. The second is that measures of financial education are not associated with a reduced likelihood of having past-due medical debt.


Though the average American has low financial knowledge, we find that that financially knowledgeable people have a lower risk of past-due medical debt (FINRA Investor Education Foundation, 2013). Yet, spreading financial knowledge remains a challenge: we find no evidence that receiving formal financial education is associated with lower past-due medical debt. These results may indicate that financial education may be falling short of its potential effectiveness, perhaps because it is delivered to consumers at the wrong times in their lives for avoiding medical debt or because the topics covered are not relevant to avoiding past-due medical debt. Practitioners and policymakers concerned with financial education should consider using key moments, such as doctor’s visits or when employees are enrolling in benefits, to provide targeted financial education around medical debt.