Medical debt is a severe problem for many people, especially those with health problems and cheap insurance. The Kaiser Family Foundation (KFF) conducted a survey that found 41% of American adults have medical debts. About one-quarter of adults have medical bills they are having trouble paying off. Nearly half of those with debts (about 44%) owe at least $2,500, while 12% owe more than $10,000. While these amounts do not sound outrageous compared to the cost of automobiles and mortgages, these debts may be inflated by price gouging.
The New York Times reported on a proposed final rule from the Trump Administration that would encourage health insurers to essentially lend money to policy holders to pay for medical bills:
Buried in the fine print of Obamacare regulations, the Trump administration is floating a novel idea for those who can’t afford to shell out tens of thousands of dollars in out-of-pocket medical costs.
Why not borrow the money from your health insurance company?
In the dense 1,121-page final rule issued last month about how the Affordable Care Act market will operate next year, the administration suggested that insurers consider offering loans to cash-strapped customers.
Under this approach, people who develop a costly disease or need unexpected emergency care would be able to turn to their health insurer for loans to cover their share of the bill. The debt, though, would have to be repaid, presumably with interest.
This would supposedly provide a way for Americans with high-deductible health plans to finance medical care they otherwise cannot afford. It is unclear what incentive health insurers would have to lend to plan members.
This sounds like a terrible idea. If there is one thing our overpriced health care system does not need – with its surprise medical bills, lack of transparency and price gouging – is an easier way to take on debt to pay outrageous bills. There is already a way to borrow for medical expenses. It is called Care Credit and credit cards. Furthermore, health care providers need an incentive to work with their customers (i.e., their patients) to better afford care. The easier it is for hospitals to foist medical debt collection on another party, the less incentive they have to work with their patients.
There are numerous policy ideas better than asking insurers to become lenders. These include: 1) price transparency. Healthcare is the only area of our economy where mutual assent (i.e., a meeting of the minds) is not required for an enforceable contract. It is difficult to obtain price estimates, and providers bear no punishment when they fail to provide them. A collectible debt should require price transparency with an estimate. 2) Decision support tools. Patients have no way to compare prices. Health insurers should be encouraged to provide tools, not loans. 3) Require choice. In 1978 the Federal Trade Commission eyeglass rule required optometrists and ophthalmologists to provide patients with a free copy of their prescription if requested. In other words, after paying for an examination optometrists could not hold your prescription captive to force patients to buy overpriced glasses from them. That rule opened competition among discount eyeglass chains that now includes online glasses vendors like Zenni Optical. Something similar should be required to facilitate competition for X-rays, MRI, lab tests and other shoppable medical services. 4) Notice a debt is for sale. Medical providers often sell medical debt for pennies on the dollar. It is worth exploring a policy where health care providers must offer the debt to the patients first rather than merely sell it to third parties whose business model is harassment. I expect most patients would pay much, much more to cancel a debt than a third party. This would need to be done in a way that does not encourage patients to hold out for a low offer, however. 5) Medical courts/arbitration. A proposal suggested by Robert Hertz are medical courts with arbitration to resolve disagreements over medical bills. My concern about medical courts is the way that the independent dispute resolution in the No Surprises Act has gone off the rails. Arbitrators are siding with providers 90% of the time, often awarding fees ten times those paid to network providers. There would need to be checks and balances to prevent bias and a way to appeal questionable rulings. Arbitrators would also need to be randomly assigned to prevent situations in which courts pander or cater to either patients or providers.
A better way to deal with medical debt is to combat outrageous medical prices rather than facilitate borrowing. An example of the perverse incentives of borrowing for an unaffordable service is the student loan crisis. The availability of student loans has had a significant role in making college unaffordable. Likewise, the availability of third-party payment has played a significant role in making medical care unaffordable.
New York Times: Can’t Pay Medical Bills? Trump Administration Suggests Getting a Loan