Are We Sinking Ourselves in Medical Debt?

Several of my friends, independently, have told me their stories about their experiences with Obamacare. All the stories are similar in many ways and entail recounting of large deductibles and small coverage. The news media has recounted different stories, each with a different problem, but basically all with the same theme. My favorite of the most recent ones in my realm is of a wife and mother whose kids are Native Americans and medical is paid by the tribe. Her husband is covered by employer insurance. They cannot afford to put her on his health insurance. Her husband works for an oil and gas firm. The wife and mother purchased a Bronze policy with a $6,250 deductible. Most Obamacare policies that I have investigated have a $6,250 deductible. The wife and mother said she could not pay the deductible if she had an illness and at today’s costs, if only 60 percent of her illness was covered by her Bronze policy, she would be in debt until she retired. The conundrum is that the general populace has no experience with medical costs or with the limits of the deductible. The wife and mother is very knowledgeable about health care since she has worked in the field for many years as support staff. She reports that she and her husband cannot qualify for any assistance or subsidy. As so many others in the middle they are in the wrong income bracket.

The purpose of insurance is to provide financial relief from disaster and catastrophe in a car accident, flood, fire, or health. And that is where we are. Disaster relief at the amount you can afford. The elusive part is what you can afford. We have seen the deductibles increase from $1,000 to $3,000 in just 5 years. And now the insurance policies in the private sector are beginning to mirror what you can buy in the exchanges. Hence, the predictions are that employers will dump the employee coverage because they cannot continue to pay for the escalated premiums.  I will have to say that it has become so complicated our company had to hire consultants to shop for coverage and when the 8 page comparison shopping between the insurance companies arrived, they were almost impossible to interpret.

Worst of the worst, you have a medical emergency. If you are in an HMO plan, you have no benefits outside of your network. Don’t have your cardiac event or accident away from home, you will have no coverage.  In some of the new PPO or HSA plans, you have no coverage until you have met your deductible and maybe some percentage of your medical bills as well. And, prescriptions are a whole different issue. You may find there is no generic for your Rx and the insurance company refuses to pay for the brand name, or they pay so little, or they pay nothing until the deductible is met.

On December 11, 2014 the Consumer Financial Protection Bureau (CFPB) released a report stating 43 million Americans have overdue medical debt on their credit reports. This medical has a significant impact on consumer credit. The effects of these high deductibles have not really impacted the market yet!

People incur medical debt differently from other bills. The incident is unplanned, unpredictable, and terribly costly. Insurance payments are slow, hard to understand, and leave most people in the lurch until said bills are paid. If there are billing disputes between the provider and the insurance company, the covered person becomes responsible. Many times you may not know you owe a bill until the provider has turned it over to a collection agency and the unwanted phone calls start.  And these collection agencies are notorious and unrelenting.

The CFPB report stated that half of all overdue debt on credit reports is from medical debt and 52 percent of all debt on credit reports is from medical expenses. That means one of every 5 credit reports contains overdue medical debt and in many cases it is the only overdue debt on the credit report.

Third party collectors use a variety of tactics to get consumers to pay the debt, promising to keep it from going to their credit report where it will lower their score. Since the cost of many items in the world are based on your risk and payment history as determined by your credit score, you may find your insurance rates, your mortgage rates, and your car payments higher with a lower credit score.

The CFPB releases tips on how to deal with medical debt, both before and after it reaches your credit report. They give the advice to review your bill and make sure you received the service and to act quickly if you have a dispute. They recommend sending a written notice with a copy of the relevant documents relating to the charges.  This sounds easy and logical. But….if you have ever disputed a bill with a healthcare facility or an insurance company, you know this is a fallacy.  You must be ready to build a bunker, bring out the heavy artillery and stockpile food and water for the siege. It takes a long time and a lot of effort. This causes people to pay bills they don’t owe because it is easier than fighting the battle, especially for small sums.

The new insurance reality can only bring much more bad debt. Medical costs will continue to escalate as technology is added to the equation. When did more technology reduce the amount of work or cost on any system?  It will make it more sophisticated to operate, and then it takes more educated and expensive workers to do the work.  Electronic medical records may be better for us and I certainly look forward to the day I have my medical history on a flash drive in my purse, but it certainly has put a large number of file clerks out of work.

The average person does not understand the complicated medical process and certainly not how charges are generated. How does the average person pay for medical events? How do you keep the collection agencies away from your phone? What happens most of the time is people do not pay. The new insurance coverage is a formula for increased medical debt.

What definitely is true is the healthcare landscape is being reshaped. And it appears it is happening quickly.