The Hidden Consequences of Eliminating Medical Debt

As the school year begins for millions of people in the United States, student debt may be a top concern for many students and parents. With student debt forgiveness programs underway for several years, the federal government has now announced similar initiatives targeting medical debt. Across the country, local and state governments, including Illinois, North CarolinaConnecticut, Michigan, Ohio, Louisiana, Arizona, Florida, Pennsylvania, Missouri and New Jersey have announced programs to purchase outstanding medical debt or provide hospitals with additional payments if they take the steps necessary to settle outstanding medical debt of patients who do so. qualify. While four out of ten Americans have medical debt, so the impact of such initiatives may be smaller than expected.

First, in many of these programs, only patients with incomes below a certain threshold are eligible for debt forgiveness. This makes philosophical sense: the government shouldn’t pay the medical bills of billionaires who don’t pay them. At the same time, most of these programs are tied to Medicaid eligibility or are defined as incomes below a certain percentage of the federal poverty level. This summer, for example, North Carolina Governor Roy Cooper announced a new round of medical debt relief policyunder which participating hospitals will receive funding to alleviate the medical debt of Medicaid enrollees. But that means anyone making more than $25,000 annually is ineligible. So the janitor who cleans your kids’ school rooms and works two other jobs probably doesn’t qualify. Several types of debt (those considered “uncollectible,” essentially later-stage debt) will be forgiven for people with incomes below 350% of the federal poverty level.

Second, hospitals that want to receive additional payments from these medical debt buyback programs must provide discounts on medical bills. But what does a “50% off” discount mean for the individual American if your hospital bill is $250,000 for your cardiac arrest? Or when a hospital stay for appendicitis costs $22,000? Or when your bill for an ER visit, after insurance, is €5,600?

Third, research shows that nonprofits like Undue Medical Debt (formerly RIP Medical Debt), whose goals are to “strengthen communities by eliminating financially burdensome medical debt” and advocating for structural changes in the U.S. healthcare system, are not reaching their target audiences as much have benefited as hoped. Unfortunately, after studying 83,401 people cleared of medical debt, the nonprofit’s $169 million debt paid off resulted in no significant improvement in mental health, no improvement in credit scores unless the individual no longer had any other debt, and no change in healthcare. use or financial well-being. Those whose medical debt was resolved reported similar financial barriers to seeking medical care and continued to experience difficulty paying other bills compared to those without medical debt relief. These findings may seem somewhat counterintuitive. After all, doesn’t it seem logical that if someone were to pay off your medical debt, this reduced financial burden should translate into improved financial stability? This may be demonstrated in student loan forgiveness programs, but this is not the same for medical debt.

There are several parallels between student loans and medical debt, including the use of debt collectors and other predatory parties, which has encouraged some policymakers to pursue similar tactics in debt relief. However, one of the biggest differences between these two types of debt is that student loans tend to be a more discrete, one-time event, unlike medical debt, which is much more unpredictable. Due to the dysfunctional nature of the American health care system, where care is paid for and paid for through a complex web of public, private, or mixed insurance benefits, along with patient responsibility, every time someone seeks health care, he or she faces a significant greater risk of receiving medical care. excessive charges, billing errors, denied claims and high out-of-pocket expenses. The use of the healthcare system is unpredictable, with the only certainty being that the need for it is inevitable and increases with age. As a result, even if the medical debt is “wiped out” at some point, there is a good chance that medical debt will recur.

Well-intentioned debt relief policies and programs, both public and private, can have undesirable consequences for the broader health care system. Healthcare financial news usually focuses on bad actors in healthcare, including nonprofit hospitals that sometimes act no differently than their for-profit counterparts. But what about mission-driven hospitals struggling to survive and trying to provide needed services in areas where it is not profitable to do so? These hospitals depend on patient income to function. Is it fair to force hospitals that already charge lower rates than their counterparts to give the same percentage discount on their prices? Without an idea of ​​what costs are reasonable, this blunt policy could create a potential incentive to further inflate the “list prices” that hospitals charge patients, also known as the “chargemaster.” And this could harm all patients — those who qualify for Medicaid and most Americans who do not, further disrupting the cycle of irrational prices and misaligned incentives. In the worst case, hospitals serving the neediest people who don’t have much financial margin will be forced to close their doors, leaving these communities without health care.

Conversely, hospitals that already benefit from the current system could make even more money without helping patients by gaming the system. How? Hospitals can write off “bad debts” or unpaid patient balances as “charity care,” ironically giving them a larger tax write-off. Because there are no regulations on the prices hospitals can charge for their services, they could easily raise their prices tomorrow. Particularly because hospitals allow a greater number of patients to qualify for a percentage discount, these higher prices mean they can write off a greater dollar amount, leading to a loss of significant tax revenue for the government. Ultimately, these types of medical debt relief programs, implemented through incentive payments to hospitals, could result in the government paying twice with no real benefit to the patient.

To be clear, it is essential to address the consequences of the dysfunctional way our country has financed health care. Policymakers should be commended for all the attention they pay to these issues, because they impact the lives of every American. But the effects of these initiatives will be far from the ambitions of policymakers. North Carolina Governor Roy Cooper, for example, has done just that said that the pilot project in his state “will significantly reduce the burden on them, but can also help make people healthier. . . They will no longer be afraid to go to a doctor or hospital.” Senator Mike Simmons of Chicago has stated that their state’s medical debt purchase program “gives Illinois families control over their financial future without the burden of medical debt holding them back.” But a one-time medical debt buyback program will not eliminate patients’ fears about seeking medical care, nor will it assure them of a future free of medical debt.

True relief from medical debt will not come until our labyrinthine health care system is reformed. This will require proposals that address the fundamental issues of why patients have medical debt in the first place. Medical debt is a foreign concept in other developed countries and there is much to learn from these models. As it stands, one of the largest current federal initiatives, the American Rescue Plan, is expected to forgive medical debt 3 million Americans. This is less than 1% of Americans. Yet 40% of Americans have difficulty paying their medical bills. Our policymakers must help address these root causes instead of spending public dollars on buying back medical debt, which will only continue to grow.