Though provisions in the president’s health reform law were intended to help address the nation’s growing medical debt crisis, Americans are still sinking in health care related debt -- and it’s only going to get worse.
Medical debt has steadily climbed in the last five years and it is now the leading cause of bankruptcy in the country. Today, one in five Americans has some level of medical debt and has been contacted by a debt collector.
That’s according to a new study by Nerd Wallet released today that highlights just how serious the medical debt crisis really is.
In 2012 alone, $21 billion in medical debt was collected from American consumers –and more than $1 in every $3 dollars paid to third-party collectors is for medical debt.
“The system that Americans trust for their medical care is not very trustworthy when it comes to their finances,” says Christina LaMontagne, General Manager of Health at NerdWallet and author of this study. “Many Americans think they are getting the greatest care in the world, and yet the American household is more indebted to the medical system than ever before.”
A separate study released earlier this year by Bankrate found that about a quarter of Americans had more medical debt than savings. That same study found that more than half of respondents said they were either "very worried" or "somewhat worried" about being overburdened by health expenses.
While the lack of health insurance is a major reason many people are in debt, it’s not the only reason. Plenty of people who have health insurance also struggle with debt related to health treatment, especially in the wake of the economic downturn and the trend toward higher deductible health plans.
Roughly 38 percent of Americans with employer-sponsored health insurance had a deductible of $1,000 or more in 2013—up from 10 percent in 2006, according to the Kaiser Family Foundation. Meanwhile, the average family deductible on a silver plan sold on the health exchanges was about $6,000.
According to the Medical Group Management Association, multi-speciality practices saw their bad debt (money they are owed, but couldn’t collect) go up by 14 percent between 2008 and 2012, Kaiser Health News reported. Because that number is increasing, health providers are changing the way they process payments. Some medical offices have reduced the amount of time they wait until going to collection agencies, while others expect to be paid up front before they perform a procedure.
While the cost of care and prescriptions continues to rise, there are other factors at play that have contributed to higher medical debt. Nerdwallet researchers point to problems with Medicare billing and inconsistencies.
Because some hospitals don’t comply with Medicare’s billing requirements, they can end up improperly billing the program—sometimes quite significantly. Indeed, a NerdWallet Health review of Medicare Compliance Reviews of US hospitals conducted by the Office of the Inspector General in 2013 found that none of the audited hospitals was fully compliant with Medicare medical billing requirements and all of the hospitals demonstrated billing errors. In each case, the billing errors led to overpayments, the study said.
“The medical system is a mine field for the average consumer. While expenses mount for households, bills are riddled by a shameful number of hard-to-detect medical billing errors,” the researchers said. “Non-compliance in Medicare billing could be symptomatic of broader medical billing errors across the system.”
Another issue that leads to medical debt is a lack of price transparency in health spending. Right now, it’s nearly impossible for consumers to know upfront how much they are going to have to pay for a particular procedure.
According to survey conducted by Harris Poll on behalf of NerdWallet Health, 73 percent of adults said if they knew the cost of medical care before receiving a treatment, they could make better health decisions.
The Obama administration, for its part, has attempted to improve transparency in health care prices. In May, the Centers for Medicare and Medicaid Services (CMS) for the first time ever released a massive data trove of information on how much thousands of hospitals charged Medicare for the most common inpatient procedures.
Since then, CMS has rolled out more data to help create more transparency in health care spending, though health experts warn that it is important to analyzing the data with appropriate context.
Top Reads from The Fiscal Times: