Borrowing Ill Health

As health-care costs continue to climb, the trend to more "cost sharing" continues, and the ranks of the uninsured keep swelling, more and more Americans are finding that paying for medical care means going into debt. The latest study by the Commonwealth Fund found that one out of five Americans have medical debt -- a population that includes many individuals with health insurance. In fact, nearly two-thirds of people who reported being in debt or having problems with medical bills had health insurance at the time the bill was incurred. Medical debt doesn't discriminate by race or class either, though like other economic forces, it disproportionately impacts lower-income individuals and individuals of color.

The rising cost of health care has created a move toward insurance plans that no longer actually insure patients from catastrophic or unexpected costs. As premiums have continued to rise, employers are increasingly offering their employees insurance that is cheaper in cost and quality. Higher deductibles, multiple deductibles for each family member, higher co-pays, along with exclusions for any number of treatments or drugs, have hollowed out the insurance from covering the health-care costs for which it was designed in the first place.

Of course, the uninsured remain at the highest risk of succumbing not only to illness by not getting preventive care, but to medical debt. Half of uninsured adults report medical debt or bill problems. The public often has the impression that the uninsured are immune to rising out-of-pocket costs since they can get free care at any public hospital, or qualify for charity care of some type. The reality is uninsured patients may actually be charged more for care they get at the doctor's office. Insured patients get negotiated discounted rates, while those without insurance are charged and often expected to pay the full sticker price. Many hospitals and providers are turning to financial service companies that ease their burden for collecting bills by providing patients with a new way to pay their health bills: with credit.

In 2005, the uncovered costs of health care, not including premiums, added up to $250 billion, according to the consulting firm McKinsey & Company. Increasingly, those out-of-pocket costs are being borne through debt -- as more providers outsource their receivables function to third-party collectors, or by teaming up with a financial services company that provides credit cards or a line of credit to patients when they receive care. Capital One, Citigroup, General Electric, and U.S. Bancorp have all entered the field to assist "self-pay" (read: uninsured or covered by high-deductive plans) patients in meeting their health-care costs. While some banks now offer medical-care credit cards, other products are less obvious to consumers. As a cover story in Businessweek detailed, hospitals or doctors' offices that once offered interest-free payment plans are now transferring their accounts to a third party, like CompleteCare, which pays the hospital upfront, then makes its money collecting the debt from the patient, often at considerable interest. Under these plans, patients who are past-due may be charged as much as 27 percent interest on their debt. Often these products are offered under the guise of "financial assistance" to patients, with fees and finance charges buried in fine print. Patients often think they are signing up for a payment plan with the doctor's office but are unwittingly agreeing to a credit card or credit line to pay for their visit.

In addition to these new forms of deceptive financial products, patients are also increasingly turning to ordinary credit cards to pay for medical expenses. In 2005, when De¯mos and the Center for Responsible Lending surveyed 1,150 low- and middle-income households with credit-card debt, nearly one-third of those sampled reported that they had used their credit cards to pay medical expenses. Those households had substantially higher levels of credit-card debt -- an average of $11,623 versus $7,964 for households without large medical expenses.

As explained in Up to Our Eyeballs, a new book on debt in America, when people finance their medical expenses on plastic, their health problems become tangled up with all the problems of credit cards -- the unpredictable interest rates and the maze of ever-changing terms, conditions, and fees. It's hard to say how much of the over $12 billion in late fees charged by the card companies were accrued by people who made late payments because their illness had them laid up in the hospital, or because the monthly credit-card bill got overlooked in between doctor's appointments and calls to the insurance company.

Medical debt coupled with increasing deductibles and co-pays also causes people with health insurance to delay or forego the medical care they need. In other words, it's causing the insured to act like the uninsured. A study by the Kaiser Family Foundation found that patients with medical debt and insurance were more than four times as likely as their debt-free counterparts to delay care, more than twice as likely to leave needed drug prescriptions unfilled, and more than three times as likely to skip recommended treatments and tests. Medical debt prevents people from getting care for many reasons: embarrassment in facing the provider to whom they owe money; inability to pay for follow-up visits because the payment is now demanded upfront; or simply denial of care due to existing debt with the provider.

Other financial hardships are common among households with medical debt, as medical costs crowd other costs of living. In the Commonwealth Fund survey, among people reporting medical debt or problems paying medical bills, one-quarter were unable to pay for basic necessities (food, rent, or heat) because of medical bills; nearly two out of five had used up all of their savings; one-quarter had taken on credit-card debt; and one-tenth had taken out a mortgage against their home. According to a study conducted by the Access Project, more than one-quarter of those with medical debt had experienced some type of housing problem resulting from their debt. Many of these individuals will ultimately end up in bankruptcy court, felled by the very system that is supposed to prevent people from catastrophic costs related to illnesses or injuries.

Medical debt is a problem in its infancy, and the entry of well-established banks along with new upstarts offering credit cards and credit lines creates the potential for exploitation and abuse. At its core, health insurance is supposed to provide access to care and protect patients from the financial devastation of catastrophic illness or accident. The new epidemic of medical debt is evidence that our system is failing on both counts.

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