Millions of people struggle with medical indebtedness. Millions more are thought to forgo care or put off treatment, hoping to avoid medical bills. The nonprofit media, Kaiser Health News, published extensive surveys on medical debt in 2022. According to National Public Radio (NPR):
Nationwide, 100 million people have health care debt, according to a KHN-NPR investigation, which has documented a crisis that is driving Americans from their homes, draining their savings, and preventing millions from accessing care they need.
Consumer advocates are lobbying the Biden Administration to take steps to protect Americans with medical debt from aggressive bill collectors. Advocates want to ban medical debt from impacting consumers’ credit scores and ban the common practice of hospitals selling bad debts to bill collectors, which are often sold for pennies on the dollar.
In letters to the IRS and the Consumer Financial Protection Bureau, the groups call for new federal rules that among other things would prohibit debt for medically necessary care from appearing on consumer credit reports.
One problem with these proposals is that some medical debt does not appear on credit reports as “medical debt.” Much of it appears as outstanding balances on credit cards, for instance. Patient advocates can do little to help those with private debts to family or debts that are on credit cards.
While some of the debt appears on credit reports, much of it is hidden elsewhere as credit card balances, loans from relatives, or payment plans to hospitals and other medical providers.
Not only do advocates want the federal government to ban nonprofit hospitals from selling patient debt, they also oppose allowing health care providers to deny medical care to people with past-due bills. This practice is widespread according to KHN.
Many voters would likely agree that medical debt should not impact a person’s ability to get a job or qualify for a car loan needed to commute to work. It may be much harder to convince voters that medical providers should continue providing services to those unwilling or unable to pay for care.
Nonprofit hospitals are required by law to provide some measure of charity care. Laws that govern charity care vary slightly from state to state. The charity care standard is generally 4% to 5% of net patient revenue must be provided to patients who qualify for charity care. Many hospitals make it difficult to qualify for charity care or expect patients to apply prior to care. Yet, regulations that make charity care provisions more transparent are unlikely to be much help for many debt-ridden patients.
But many consumer and patient advocates say the actions, while important, still leave millions of Americans vulnerable to financial ruin if they become ill or injured. “It is critical that the CFPB take additional action,” the groups write to the federal agency created in 2010 to bolster oversight of consumer financial products.
Collection industry trade associations lobby against measures that would reduce their leverage and profit margins from medical debt collections, saying:
“…limits would take away an important tool that hospitals, physicians’ offices, and other medical providers need to collect their money and stay in business.
“We appreciate the challenges, but a broad ban on credit reporting could have some unintended consequences,” said Jack Brown III, president of Florida-based Gulf Coast Collection Bureau, citing the prospect of struggling hospitals and other providers closing, which would reduce care options.
Arizona recently passed a ballot initiative that limits the interest rate than can be charged on medical debt and limits the percentage of wages that can be garnished to pay for debts. Something that is lost in the debate about medical debt is that patient advocates often appear to believe that any medical debt is inherently bad. That is not the case. Why is debt taken on to pay for medical care any worse than debt for the latest designer purse or flashiest new car? According to Kelly Blue Book, the average new car costs nearly $50,000. According to Bankrate, the average new car payment is about $700 per month. I have read news reports about an increase in delinquent car loans recently, although car dealers aren’t accused of causing it.
How big is the problem of medical debt? According to a recent study (See Figure 3), just over three-fourths (76%) of people with medical debt owed less than $5,000. Only 12% owed more than $10,000. These are not huge figures, but neither are they insignificant. One problem (at least in my mind) is that some of these four-digit medical debts could be based on inflated list prices rather than the negotiated prices health plans pay. Is a $5,000 debt for cancer treatment better or worse than a $5,000 debt for an emergency room visit due to a panic attack? Most people would likely say the latter is more egregious. I would also say medical debt that results when patients aren’t informed about prices and inhibited from shopping around is more egregious than a copay for a hospital stay due to a heart attack. To the extend medical debt is the result of price gouging that is a tragedy.
7 thoughts on “Is Medical Debt Bad? Sometimes; Sometimes Not”
I’m suspicious of the term “charity care”. When a hospital calculates its bad debt, what does it really do? Write it off as a loss? Or charge other patients who have better means or better insurance a bit more to offset the loss? I’ve read studies for more than 50 years that say they charge much if not all the bad debt to someone else.
A few years ago, Milliman & Robertson, the actuarial firm, valued this so-called “cost shift” at approximately 15% of overall medical insurance premiums. That finding struck me because it was consistent with an Atlantic Monthly article from 1970 that suggested the same percentage was true of hospital costs. (The author of that article was a young physician named Micheal Crichton. Yes, that Michael Crichton).
Is bad debt in one place, covered by surcharges in another, a true loss? Or maybe more like a warranty cost? Can it be in any sense “charity care”?
A hospital I worked for wrote off bad debts to charity care (many years ago) before being advised to stop by legal counsel. That is probably why hospitals require charity care recipients to apply prior to care.
Thanks for an excellent post. Here are a few comments:
1. The uninsured have always had a lot of medical debt. They take a gamble going uninsured, and medical debt results when they get sick and lose the bet.
2.The recent increases in medical debt derive in large part from people who are insured — but who do not have savings to pay their deductibles. In a recent survey, two thirds of employers who offered high deductible insurance did nothing to help employees save in an HSA.
Singapore has a forced savings program to build up HSA’s. I can’t see an American politician endorsing this, but it is not a bad idea.
3. The fastest way to reduce medical debt is to expand Medicaid. The states which have expanded Medicaid have almost 60 per cent less medical debt than the holdout states.
I will have more comments later. I have studied this issue a lot.
I like Singapore’s approach. That would have been a better mandate than Obamacare. Make people start saving when young so they have money built up when they begin having health problems in late middle age.
“The fastest way to reduce medical debt is to expand Medicaid.”
Sounds right. I think a lot of advocates agree.
Recall the Administration and Congress decided in 2010 to implement the PPACA instead. It was quickly apparent that wasn’t the fastest way to reduce medical debt.
Congress passed a law called EMTALA in 1984, which required hospitals to at least stabilize any patient in an emergency, even if the patient could not pay.
The amount of funding in this brave new law was $0. Hospitals were told to carve out some surplus from the fully insured to pay for the new benefit.
The result is a huge relative cost for administration on any patient who is uninsured or out of network. Adding up the bills, the reminders, the phone calls, the review of patient aid requests, the court notices, the occasional lawsuits, the public relations nightmare if a reporter is involved –
no wonder hospitals are eager to sell their receivables for five cents on the dollar.
The number of people with serious medical debt is not easy to ascertain. The Kaiser study that you cite made a good faith effort to come up with totals, but their estimates are based only on their surveys — i,e. they did a thousand interviews and extrapolated from there. With no malice intended they could be way off.
If they are right, though, the numbers are pretty bad. 12% of debtors owing over $10,000 could be 6 million households in trouble — plus the invisible credit card balances –and that is a lot to me. (Credit card debts are accurately counted and they are way up nationwide.)
Interestingly, credit counselors will advise people to pay their medical bills last, and to never put their medical debts on credit cards. Unlike car debts or mortgage debts, a medical provider is unlikely to sue you and they cannot re-possess a part of your body.
According to interviews I have read, most doctors absolutely hate high-deductible insurance. Their success rate in collecting patient balances is wretched, and cutting off a patient who does not pay is not pleasant.
One solution is run their practice like Dr Keith Smith and the Surgery Center of Oklahoma. This clinic does not take health insurance. The patient checks in like they are going to a hotel. They post up cash or credit for the whole honest price before the care begins. So no medical debt is created.
This is a good solution for less risky procedures and for financially solid patients.That is not everybody but it would be a good start.