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The Evolving World of Medical Debt

Recently, John Oliver made television history by first buying, then forgiving the medical debt of 9,000 people. Oliver was able to purchase the $15M of debt for just $60k, cents on the dollar. When you divide it out, that’s an average of $1,660 owed by each person who benefitted from Oliver’s generosity. That number is actually slightly lower than the 2014 national average of $1,766 found in a study by the Consumer Financial Protection Bureau. The CFPB also found that nearly half of the debt showing on US credit reports in 2014 was medical debt.

If you’re a healthcare provider in this debt-heavy age, it can be hard to understand why medical debt in particular seems to present such a burden to consumers. There are a lot of moving pieces in today’s healthcare revenue cycles: here are three specific ones which shed some light on this pressing issue.

Insurance Eligibility and Education

With the passage of the Affordable Care Act, suddenly everyone in the US was eligible for insurance. However, that doesn’t mean everyone was educated about insurance. In the past, when insurance was mostly available through employers, human resources representatives and coworkers could provide valuable guidance for those who were insured for the first time. Today, many people buy insurance through the marketplace to avoid a federal penalty, but that doesn’t mean they understand how insurance works or what their financial obligation will be. And for hospitals, the burden of patient education in this area has grown exponentially overnight. When patients don’t understand what they will owe and why, they’re more likely to struggle with repayment.

Higher Deductibles

Another impact of the Affordable Care Act is that many of today’s insurance plans carry astronomically-high deductibles. This is in large part due to insurance companies having to provide insurance to anyone seeking it, paired with the desire of many customers to have low premiums. While these high deductible plans are usually chosen by those who only plan to use insurance in the case of catastrophe, when those incidents occur, they’re usually totally unprepared to meet the obligation of their deductible. A 2015 analysis by the Kaiser Group found that deductibles are increasing six times faster than the wages of workers. One in five workers now has a deductible of $2,000 or more.

Time Off Work

Outside the general rate of raises in the workforce, when someone does fall ill or get injured and needs to use insurance, their often insufficient wages may be even further impacted. This is when medical debt can truly get out of control. If a patient has to choose between paying a mortgage or paying a doctor’s bill, most will probably choose the mortgage for as long as they can. In 2012, hospitals provided over $45B in uncompensated care, the majority of which was uncompensated due to an inability to collect.

When patients are struggling to pay their medical debts, they may not know what options they have. Many new companies are offering interest-free financing to those who can’t set up a payment plan with their care provider but need to make small payments over time. For hospitals and other care providers, the key is to be sure your patients are informed about what they owe and have every support they need to make those payments. If this isn’t something you want to manage in-house, consider outsourcing the management of your revenue cycle to a provider like HCM.


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