A decade ago a friend had some medical tests done at a hospital outpatient clinic. It was something simple, an X-ray and a blood or urine test. The hospital business office assured her that the care would be covered by her health plan. Months later a debt collector called demanding more than $700 for an outstanding medical bill. My friend had no recollection of having ever received a bill. The debt collector said he worked for the hospital, but when asked for a copy of the bill he could not provide one. A month or two later she got another phone call requesting payment of $700 plus dollars. Again, when asked for a copy of the bill supposedly proving she owed more than $700, one was never provided.
My friend ignored the bill, vowing not to pay it until the hospital sent her an actual invoice. It never did. The authorities did not cart her off to a debtors’ prison. The collection agency stopped calling after another attempt or two. Her credit was unaffected. All the parties forgot about it.
Some people are not so lucky, however. There have been numerous reports in the media of hospitals suing patients for outstanding debts, sometimes debts as low as $700. People have had liens filed against their houses and their wages garnished to cover debts owed to a hospital.
How much does medical debt effect American households? Some estimates place the number of Americans with some form of medical debt at 100 million. That is nearly one-third of all Americans. Medical debt, or the fear of it, can reduce access to care as people are afraid to see a doctor or seek care for medical conditions that need treatment. In some cases, clinics refuse to make appointments for patients with outstanding balances from past treatments.
The firm, R.I.P. Medical Debt, is a nonprofit organization whose mission is to buy medical debt and forgive it. An aged medical accounts receivable (i.e. medical debt) sells at a steep discount. R.I.P. Medical Debt claims that it costs only $1 to erase $100 in medical debt. That’s another way of saying that after some point the probability of collecting it is slim. As of this writing the organization has forgiven nearly $12 billion in medical debt for 7.5 million families. Those are both huge numbers, but a drop in the bucket of the debts that are out there.
What difference did forgiving more than $11 billion in debts for millions of Americans make? Not much, according to a new study.
But a study published by a group of economists on Monday calls into question the premise of the high-profile charity. After following 213,000 people who were in debt and randomly selecting some to work with the nonprofit group, the researchers found that debt relief did not improve the mental health or the credit scores of debtors, on average. And those whose bills had been paid were just as likely to forgo medical care as those whose bills were left unpaid.
By contrast, the R.I.P Medical Debt executive director told the New York Times the organization constantly hears from the people it helps how much they appreciate the gesture. More from the New York Times:
Studies had shown significant mental health and financial improvements for other types of debt relief, such as paying off student loans or mortgages. But those debts have more urgency: Homeowners who do not pay their mortgages could quickly lose their homes, whereas a hospital bill can languish for years with little consequence.
The key to reconciling these two opposing views is to look at the type of debt that is forgiven. Once a hospital or clinic sells a medical debt, they view it as nearly uncollectible. At that point, they’ve decided against suing, garnishing wages or placing liens on property. Forgiving a debt that is backed up by a lien against your house is something entirely different. It’s forgiving the face value of the debt plus interest when you or your heirs need to sell.
It is difficult to quantify the benefit medical debt forgiveness provides. In some cases, it’s good public relations when a hospital partners with a charity and publicly announces the forgiveness of $1 million in debts it knows would never have been collected. One likely benefit for debtors is peace of mind, knowing liens, wage garnishment and potential harassment from bill collectors down the line is no longer possible.
The entire article is worth reading: Paying Off People’s Medical Debt Has Little Impact on Their Lives, Study Finds – The New York Times (nytimes.com)
Measuring ‘willingness to pay’ would be an interesting experiment. Let’s assume economists work with a hospital and have grad students contact randomized debtors and offer them a deal. Agree to pay 50%, 25%, 10% and 5%. Sign an agreement and start a payment plan. Then compare what debtors were willing to pay and if they stuck to the agreement. I have a suspicion that hospitals would not be pleased with the results.
Thanks for this article.
In my opinion, the most serious problem in this one case is the outright fraud committed by the debt collection agency. I do not know how common this is, or exactly how to catch it, but there ought to be a way to put such collectors out of business or even sent to jail.
Fraud would be my biggest fear. Say a collection agency calls and offers a deal for 25% of face value. You take out a loan to pay it off and they say “gotcha” when it comes time to clear the debt.