Medical Debt among People with Health Insurance By Karen Pollitz Cynthia Cox, Kevin Lucia and Katie Keith

Kaiser Family Foundation, January 2014 An estimated 1 in 3 Americans report having difficulty paying their medical bills – that is, they have had problems affording medical bills within the past year, or they are gradually paying past bills over time, or they have bills they can’t afford to pay at all. ￼Medical debt – and a host of related problems – can result when people can’t afford to pay their medical bills. While the chances of falling into medical debt are greater for people who are uninsured, most people who experience difficulty paying medical bills have health insurance. Medical debt can arise when people must pay out-of-pocket for care not covered by health insurance or to which cost-sharing (such as deductibles) applies. Medical debt might also result from health insurance premiums that individuals find difficult to afford. ￼ The consequences of medical debt can be severe. People with unaffordable medical bills report higher rates of other problems – including difficulty affording housing and other basic necessities, credit card debt, bankruptcy, and barriers accessing health care. How does medical debt become a problem for people with health insurance? * In-network cost-sharing * Medical bills high relative to income and savings * Cost-sharing “multipliers” * Treatments spanning two plan years (doubles cost-sharing) * Family-level cost-sharing (2 family members doubles cost-sharing) * Cost-sharing for chronic conditions (cost-sharing restarts each year) * Extremely high cost-sharing (deductibles may not apply to OOP limits) * Out-of-network care * Fewer cost-sharing protections * “Inadvertent” out-of-network care * Balance billing (paying balances exceeding allowed charges) * Health plan coverage limits or exclusions * Unaffordable premiums * Other factors unrelated to insurance * Income loss due to illness * Challenges to effective self-advocacy (overwhelmed with bills, statements) * Medical debt collections * Credit card financing of medical debt Consequences of medical debt * Damaged credit * Emotional distress * Economic deprivation * Depleted long term assets * Housing instability * Bankruptcy * Difficulty accessing care ACA will not address all of the underlying causes of medical debt. For example: * High cost-sharing will persist under many plans * Limited protections for out-of-network care * Limits on essential health benefits standards * Lack of resources for consumer assistance The ACA will provide health insurance to millions of Americans who are currently uninsured, which may also improve access to health care and lower their out-of-pocket expenses and exposure to medical debt. People who are insured will also see improvements in the protection that health coverage offers. However, in light of the limited assets many people have, the problem of medical debt is likely to persist and lead to continued debate over the tradeoffs inherent in providing more comprehensive coverage and limiting federal costs for premium and cost-sharing subsidies. http://kaiserfamilyfoundation.files.wordpress.com/2014/01/8537-medical-d…

Medical debt is a horrendous problem, and it will still be with us after the Affordable Care Act is fully implemented. This important report from the Kaiser Family Foundation and Georgetown University explains the devastating effects of medical debt with special attention given to the role of cost-sharing that can create intolerable debt.

Why did the ACA legislation include such onerous cost-sharing measures? The answers have to do with ideology and federal budgeting.

Conservatives have long supported the principle that individuals must be responsible for their own lot. They define insurance as a product to protect only against catastrophic losses. They are opposed to comprehensive prepaid health care since they believe that individuals should use their own personal funds to negotiate the health care marketplace, making them empowered consumers. This concept has permeated the health policy literature in the United States to the extent that many progressives now also believe that patients have a responsibility to make a cash payment at the time they access health care in order to improve their health care shopping judgements.

Many other nations provide first dollar coverage for health care services and yet are able to keep their total health care spending well below ours. This real life practical experience in these nations obviates the need for us to get into discussions of moral hazard, the RAND HIE, Pareto parity, selective definition of insurance, asymmetrical information, health savings accounts, and so forth when these concepts are used to obfuscate the real debate that is over pure ideology – having the freedom as an individual to interact in the health care marketplace versus collectively covering all of our essential health care costs in a system dependent on rigid government regulation (social insurance) or government ownership (socialized medicine). Both markets and government can control spending, but the former does so at a cost of depriving far too many people of health care that they should have, whereas the latter enables everyone to have the health care that they need.

When ACA was crafted, the highest priority was given to make sure that the impact of the legislation on the federal budget was balanced. On the spending side, the new plans to be offered in the insurance exchanges were designed so that the most popular plans would have a low actuarial value – 30 or 40 percent of the costs of health care would be paid by the patient. It was realized that many would not be able to pay either the full premiums or the full out-of-pocket costs of these low actuarial value plans, so income-indexed subsidies were included in the legislation, but clearly not enough. Low cost plans with inadequate subsidies worked for the federal budget, but it will not work for many patients, as today’s report shows us.

So a system designed to satisfy ideology and to comply with federal budget restraints is proving to be a system that will saddle far too many patients with intolerable medical debt, with its horrendous consequences, including impaired access to health care. It’s such a shame. An improved Medicare for everyone with first dollar coverage would have prevented all of this. (We can still do it, you know.)