Family Healthcare Debt: It’s Your Neighbor’s Problem

Health Care ReformOne of the drivers behind the PPACA healthcare reform legislation was the growing number of families saddled with high medical debt. This debt can crush the hopes and dreams of families. I am not suggesting anyone should be absolved from paying their medical bills. However, the high cost of medical treatment in America is well documented.

The combination of excessively high cost medical treatment and lack of access to affordable health insurance is putting a parking brake on the productivity of America. It is also tearing apart your neighbor’s family. One of the Presidential contenders, Rick Santorum, has reportedly paid  $100,000 in medical expenses in 2009 and 2010, to care for his daughter who has a rare fatal genetic disorder. Below is a collection of thoughts on the subject that I recently came across. – Kevin 

CDC: Medical Bills Present Hardship To Many Families

Researchers from the Centers for Disease Control and Prevention reported on the financial stress caused by high medical costs.

NPR Shots Blog: 1 In 3 Americans Is Having A Hard Time Paying Medical Bills
While politicians and soon, the Supreme Court, are fighting about the fate of the Affordable Care Act, a new government study finds that a growing number of Americans are having difficulty coping with the high cost of health care (Rovner, 3/7).

Modern Healthcare: Medical Bills Strain Many Families: CDC
One out of 10 families had medical bills that they could not pay during the first half of 2011, according to newly released figures from the Centers for Disease Control and Prevention. … One out of 5 families struggled to pay medical bills during the same period. And one-quarter of households had one family member who paid off a medical bill over time. Medical bills were more problematic among low-income households (Evans, 3/7).

JAMA: High Health Costs Burdening Many Families
Differing levels of financial burden related to health cost were seen when looking at race or ethnicity. The researchers found about 28% of blacks reported problems paying medical bills in the 12 months just prior to answering the survey questions, as did about 25% of Hispanics, 20% of whites, and 10% of Asians (Mitka, 3/7).

The Hill: Report: Americans Still Struggling With Medical Debt
The report found that low-income people had the hardest time paying the bills: More than 40 percent of percent of poor and near-poor people under the age of 65 were in families with medical debt, versus 31 percent for the nonpoor. The results also varied with age, with younger Americans more likely to live in families that are struggling with the cost of medical care (Pecquet, 3/7).

Should medical debt count against your credit rating?

David E. Williams is co-founder of MedPharma Partners LLC

David E. Williams is co-founder of MedPharma Partners LLC

 March 7th, 2012 by  David E. Williams of the Health business blog

As far as I’m concerned, a lot of medical debt isn’t real debt. Real debt is borrowing money from a bank to buy a car or using a credit card to finance a vacation or taking out a student loan to pay for college. Borrowers know ahead of time that they are incurring a financial obligation for a known amount of money for specific goods or services. They have the opportunity to choose what to buy and from whom or not to buy at all. Prices can be compared across different sellers.

Some medical debt is like the real debt described above, but a lot is not. Hospitalized patients receive bills that are often indecipherable, incorrect, and owed by an insurance company. Even when technically correct the amounts can be non-sensical and vary widely from provider to provider. Patients don’t voluntarily incur these expenses –sometimes they aren’t even conscious when the decisions are made. Unlike in typical industries, providers charge patients vastly different amounts for the same services. They often charge the most to those who lack insurance and have lower ability to pay. They also expect a significant percentage of patients not to pay at all. In fact, hospitals may even boast about how much “uncompensated care” they provide.

That’s why Medical bills can wreck credit, even when paid off struck a nerve. The article describes the plight of consumers who paid off medical bills after they were referred for collection, and yet found their credit ratings dinged. There are a variety of anecdotes:

  • A couple paid off a $200 bill sent to collections, then found they couldn’t get a mortgage because their credit score had fallen dramatically. Turns out the $200 bill was in error to begin with
  • A breast cancer survivor was placed in handcuffs at the end of a chain of events prompted by the failure of a hospital to place her in the charity care program
  • An Iraq vet had trouble refinancing his home because a bill that was still in dispute was referred to a collection agency
It’s a bit shocking that even medical bills that are paid off –sometimes just to end the nuisance– can have a long-term, negative effect on one’s credit rating.
Congress is debating the Medical Debt Responsibility Act that would force credit rating agencies to delete paid off medical debt from credit reports within 45 days. That seems quite reasonable to me, especially since we’re talking about debt that’s actually been paid.
I don’t begrudge providers the right to send debt to collection. The reality is they have to collect at least some of what’s owed, and there are plenty of people who seek to avoid payment if they can. But a credit report should differentiate between medical debt and real debt.