Medical Debt

1. Medical Debt NU 508 – Healthcare Policy, Finance & Organization May 6, 2010 Tracy Hill Tricia Neis Miriam Slaugh Allison Veeder

2. PROBLEM Identification Medical Debt: unpaid medical expenses owed to a health care provider, hospital, pharmacy, laboratory or medical supply company. Medical Debt affects: • uninsured, underinsured, insured, health professionals, insurance companies, state and federal government • individuals, families and healthcare entities.

3. HISTORY • 1960’s Medicare & Medicaid • Consolidated Omnibus Budget Reconciliation Act of 1986 • Health Insurance Portability and Accountability Act (1996) • State Children’s Health Insurance Program (SCHIP) • US has seen a substantial increase in aggregate health spending relative to income • Health Care costs account for 16% of nation’s GDP – an increase from 13.8% in 2000.

4. SOCIAL Factors • Health Insurance tied to employment • Medical condition affects ability to work→ lapse in health insurance→pre-existing condition→ no affordable insurance→leads to medical debt • 29 million adults have medical debt (Zeldin & Rukavina, 2007). • One in five citizens struggle with medical debt and adults with chronic illness skip medications because of finances • 47 million Americans were uninsured in 2005 ( Zeldin & Rukavina, 2007).

5. ECONOMIC Issues • Insurance premiums ↑ 73% between 2000 and 2005, while wages ↑ 15%, inflation ↑ 14%. (Seifert & Rukavina, 2006) • Another study showed insurance premiums increased 131% between 1999 and 2009, more than 3 times salary rate increase. (Cramer, 2010). • 2/3 of US Adults under age 65 (116 million) have medical debt (Cramer, 2010) • Higher Premiums with increased out of pocket expenses • Many have turned to credit cards to pay for out of pocket medical expenses. • 10% unemployment

6. Ethical ISSUES • Individuals delay medical treatment due to fear of medical debt • Affects access to care • In a recent survey (n =100),10% of underinsured Kansans reported they or a family member postponed surgery, office visit, lab work, and prescriptions due to cost. (Britt, 2010)

7. Legal • Hospital Emergency Dept required to care for everyone. • EMTALA • More Bankruptcies: • In 2001, over 700,000 bankruptcies listed medical debt as a major contributing factor (Columbo, 2007) • Bankruptcies due to medical increased from 46% in 2001 to 62% in 2007 (Tamkins, 2009). • 1.5 million Americans filed bankruptcy in 2009 (Tamkins, 2009)

8. Political HR 3421, The Medical Debt Relief Act 1.Requires medical debt that is fully paid off or settled to be removed from the individual’s credit record within 30 days. 2. Goal is to prevent individual credit scores to be compromised by medical debt Expanding health care coverage for more individuals and families will prevent medical debt. Eliminating pre-existing clause

9. issue STATEMENT • What actions can the government and the healthcare industry take to assist Americans in reducing their medical debt, thus ensuring a healthy population and a strong economy?

10. Stakeholders Patients • At some point nearly all Americans will be a patient in the healthcare industry. • Barrier to access: Those who are uninsured or underinsured and already have medical debt may become hesitant to seek further care which will increase their debt. • Patients with debt more likely to not fill a prescription or skip needed testing or follow up visits. • Delay of care leads to more complicated and expensive conditions.

11. stakeholders • Healthcare Providers • Overwhelming paperwork, insurance red tape and slow reimbursement making it difficult for independent providers to function. • Many patients who received care default on paying. • Providers are forced to pursue collection of debts by hiring expensive outside agencies • Patients who have delayed care present sicker.

12. Stakeholders • Hospitals • When patients delay healthcare long enough, they often present to Emergency Department. • EMTALA prohibits refusal to treat patient due to ability to pay. • Emergency Departments provide very expensive care that may not be reimbursed. • Facing backlash for charging uninsured “list prices”, harassing patients for debt collection, and not providing enough charity care. • Some hospitals face revocation of property tax exemption due to these factors.

13. Stakeholders • Additional Stakeholders • Financial institutions • Communities • Global economy

14. Policy Objectives • Goal is to help citizens recover from their current medical debt and prevent the incurrence of future debt by making changes to healthcare system.

15. Medical debt • Policy Objectives • Universal Healthcare • Improve pricing policies and debt collection by hospitals. • Medical Debt Relief Act

16. Policy options/Alternatives • Do Nothing Option • Incremental Change Option • Major Change Option

17. Do nothing option • Continue with the current healthcare system that is inefficient and inaccessible to many of the population; • Deny some form of universal healthcare • Ignore the need to develop policies that assist people in reducing their medical debt.

18. Incremental change option • Differentiate medical debt from consumer debt; • Limit the entry of medical providers into financial services by requiring hospitals and other medical providers to apply fair pricing and payment schedules for the uninsured and underinsured; • Enact a Borrower’s Security Act

19. Major change option • In addition to the incremental change option: • Enact the Medical Debt Relief Act • Increase oversight of lines of credit attached to health savings account products • Improve screening for eligibility in public or private financial assistance programs • Ensure adequacy of insurance coverage by providing universal healthcare.

20. Evaluation criteria 1.Likelihood of eliminating medical debt and implementing universal healthcare, by acknowledging that the healthcare system is inefficient and inaccessible for many. 2.Size and availability of funding options for reducing or eliminating medical debt. 3. Ability of current policies to meet current and future demand for medical debt relief to consumers. 4. Political feasibility of reducing and eliminating medical debt.

21. Analysis of do nothing option • Criteria 1: • Pro- Maintain the status quo – nothing will change that isn’t already being addressed • Con- Increasing medical debt leads to continued use of credit cards to pay for medical bills and to some, even bankruptcy.

22. Analysis of do nothing option • Criteria 2 - Pro: • Contributing factors for the high costs of medical care, include advances in technology, new devices, techniques, medications and research. • High cost of medical care for elderly • Complications r/t smoking/obesity • Medical malpractice lawsuits and cumbersome gov’t regulations • Unnecessary use of ED’s continues to rise, leading to more “bad debt”.

23. Analysis of do nothing option • Criteria 2 – Pro (con’t): • Higher labor costs and healthcare worker shortages only expected to grow. • United States will continue the current quality of medical care that is not accessible to everyone. • Healthcare will continue to be funded by: • pharmaceutical and medical research companies • individuals paying for health insurance premiums • health insurance companies • Medicare, Medicaid and State Children’s Health Insurance Programs (SCHIP).

24. Analysis of do nothing option • Criteria 2 – Con: • High cost of healthcare • alarming social and economic problems • Greater number of underinsured and uninsured; • either ration or completely avoid the care • Medical debt • use credit cards to pay for medical expenses • results in outstanding credit card balances • potential to deplete personal assets.

25. Analysis of do nothing option • Criteria 3 – Pro: • Rational individuals would rather have the best care available to increase their probability of a healthier, productive life, even if their decision is financially disruptive. • Current policy - Increased cost-sharing by consumers lessens health care costs • provision of less expensive essential insurance policies to make insurance more affordable.

26. Analysis of do nothing option • Criteria 3 – Con: • growing disparity between the care a person expects to receive, what is affordable, and the care offered • Healthcare providers need to do a better job screening their patients for Medicaid and SCHIP. • Clarify and publicize financial assistance programs for those without resources to pay • Many already forgo medical care because of out of pocket expenses.

27. Analysis of do nothing option • Criteria 4 – • Pro: • Those that feel system works just fine : • strong political voices • actively lobby politicians to support their views • Pressure policy makers to preserve the status quo

28. Analysis of do nothing option Criteria 4 - • Con: • Current healthcare system does not work. • Will continue to rely on national, state and local gov’t to pay for and regulate expensive and burdensome policies • The need for policies relating to medical debt must not be ignored or overlooked.

29. Analysis of Incremental Change option • Criteria 1: • Pro- • Medical debt paid by a credit card is lumped in with all consumer debt. • Not always properly identified as medical debt • Need to improve health care providers’ policies related to billing, collection, and screening for eligibility in public or private financial assistance programs.

30. Analysis of Incremental Change option Criteria 1- Pro- (con’t) Patients not informed about the availability of financial assistance programs. • Improve patient screening strategies for eligibility for public programs such as Medicaid and Health Wave • Implement and publicize charity care programs that provide access to care for those without the resources to pay

31. Analysis of Incremental change option • Criteria 1: • Con- • Individuals may not support a universal health care plan because of increased government oversight. They may feel that decisions to pursue or not pursue medical treatments will be determined by financial cost alone without regard to personal wants.

32. Analysis of Incremental change option • Criteria 2 • Pro- • Maintain and expand safety-net clinics. • Maintain and expand public insurance programs such as Medicaid and Health Wave • Implement a guaranteed loan program for medical procedures and treatments (models student loan programs)

33. Analysis of Incremental change option Criteria 2 – Con- • Discourage medical providers from entering the financial services area • Transforms the patient/provider relationship into a debtor/creditor relationship

34. Analysis of Incremental change option • Criteria 3 • Pro- • Medical credit cards • Still have high interest rates and fees, making it difficult for people to pay – end up paying more! • More regulating of the credit card industry is needed to protect consumers from medical credit card debt • Research is needed to determine if households devoting high percentages of income to medical expenses use credit cards for other basic necessities.

35. Analysis of Incremental change option • Criteria 3 • Con- • Downward spiral of economy • Rise in healthcare costs • Premiums up 131% in last decade • Businesses struggling = decreased profits = cost to employee/consumer • Responsibility of the individual to budget for out of pocket expenses.

36. Analysis of Incremental change option • Criteria 4 – • Pro- • Individual making a good faith effort to pay their medical bills shouldn’t have to pay >high interest rates > penalty fees • Government must step in and help protect consumers from deceptive credit card terms and exorbitant interest rates and fees. • National and state hospital associations need to take steps to increase the net yield to hospitals from the uninsured population • More equitable pricing and better medical debt repayment terms

37. Analysis of Incremental change option • Criteria 4- • Con • Credit card companies are reluctant to separate medical debt from consumer debt • time and labor issue • separating the two would be very tedious and potentially confusing • Lumping all the debt together potentially benefits the credit card companies

38. Analysis of Major Change Option • Criteria 1 • Pro • Twin problems of health care cost and coverage must be addressed • Protect American families from financial insecurity and harmful health outcomes that sometimes result from current system • Ultimate solution will provide universal access to comprehensive benefits

39. Analysis of Major Change Option • Criteria 1 • Con- • Difficult to fully analyze: • Impact of the medical debt relief act • Impact of universal healthcare • Patients with access to care will increase • Question feasibility • Specialists fear reimbursement will reduce salaries • Insurance companies will use power to protect their turf by lobbying and influencing legislators to maintain the status quo

40. Analysis of Major Change Option • Criteria 2 • Pro • Ensuring health insurance coverage that provides policy holders access to care and protection from financial ruin can avoid and eliminate medical debt • Borrower’s Security Act can help people who have medical debt negotiate with insurance companies, hospitals, and other health care providers: • fee reductions • affordable payment plans • more equitable treatment

41. Analysis of Major Change Option • Criteria 2- • Con- • New health benefits + increased healthcare needs = higher health care costs • Rate of cost increases will be unsustainable over time = • major policy changes: • raise costs • increase the federal deficit Not likely to be accepted by policy makers.

42. Analysis of Major Change Option • Criteria 3 • Pro- • Borrower’s Security Act restores the current practices and balance of power in lending institutions • Limitations on credit card companies • Raise the minimum payment requirement to five percent of a cardholder’s balance to curtail excessive debt loads.

43. Analysis of Major Change Option • Criteria 3 • Con- • Health savings accounts (HSAs), high deductible plans, and limited benefit policies: • attribute to consumer-driven health care • increase individual risk and • challenge the notion of health insurance • Businesses often face double digit premium increases • Pass along more of the cost of the coverage, • Put the employee at risk of incurring significant medical debt

44. Analysis of Major Change Option • Criteria 4: • Pro • Government should consider : • Policies that restrict the reporting of medical debt to credit agencies • Health Care Loan Program that parallels student loan program: • Grant individuals access to capital for medical procedures and preventative services • Create a financial incentive to seek care • Keep the bad debt off of the health provider's balance sheet • Reduce personal bankruptcies • Help spare homeowners from foreclosure and renters from eviction

45. Analysis of Major Change Option • Criteria 4 • Con- • More funding options mean more federal government spending • Increase in the already astronomical national debt • Current system for handling medical debt simply does not work • Change must occur • Implementing a Borrower’s Security Act and enacting the Medical Relief Act are ways medical debt policies can be successful.

46. Comparison of Policy Alternatives

47. Summary • Summary/Recommended Policy • Healthcare Reform must happen, to decrease the amount of medical debt. • Do nothing option: provides no alteration in the current system, sit and wait. Medical debt will continue to accumulate at a rapid rate. • Incremental change option: change in how medical debt is looked at by creditors. The change would allow medical debt to be listed as medical debt and consumer debt as consumer debt. A decrease in percentage rate for medical debt. Once the debt is paid in full the incident is wiped from credit report.

48. Summary • Major change policy: Policymakers must address the twin problems of health care cost and coverage in a comprehensive manner to protect American families from financial insecurity and the harmful health outcomes that result from the current system. The ultimate solution is a system that provides universal access to comprehensive benefits. • By ensuring health insurance coverage provides policy holders access to care and protection from financial ruin, medical debt can be avoided and eliminated. • Decrease interest rates by credit card companies.

49. Summary • Change has to occur and it is up to us to make that change. Encourage your representatives to seek health care reform. • As health care providers we should voice our thoughts and recommendations to legislation, we deal with this issue on a daily basis and therefore will have an increase in knowledge on how it could improve. • Compromise by all parties involved (Democratic, Republican, Conservative) will need to occur to do what is need to meet Americans needs for insurance a decrease in medical debt.

50. References • Anonymous. (2008, August 21) Report: large number of U.S. adults face medical bill • problems. Atlanta Business Chronicle, retrieved on April 17, 2010 from • www.bizjournals.com/atlanta/stories/2008/08/18/daily68.html. • Britt, K. (2010, April 9). Inadequate insurance leading to many ills. Lawrence Journal World, • retrieved on April 17, 2010 from http://wellcommons.com/groups/nosurance/news/2010/apr/9/kansas-health-institute-s/ • Collins, S., Doty, M., Kriss, J., & Rustgi, S. (2008). Seeing red: The growing • Burden of medical bills and debt faced by U.S. families. The Commonwealth Fund. Retrieved on April 23, 2010 from http://www.commonwealthfund.org/Content/Publications/Issue- Briefs/2008/Aug/. • Colombo, J. (2007). Federal and state exemption policy, medical debt and healthcare for the • poor. St. Louis University Law Journal, 51, 1-25. • Cramer, R. (2010). The medical relief act. New America Foundations. Retrieved on April 18, • 2010 from http://assets.newamerica.net/blogposts/2010/financial_burden_of_healthcare_costs. • Doty, M., Edwards, J., & Holmgren, A. (2005). Seeing red: Americans driven • into debt by medical bills. The Commonwealth Fund. Retrieved on April 23, 2010 from http://www.commonwealthfund.org/Content/Publications/Issue- • Briefs/2005/Aug/. • Gruber, J. & Levy, H. (2009). The evolution of medical spending risk. Journal of Economic • Perspectives, 23, 25-48.