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No Insurance Against Medical Debt

surgery in a hospital operating room.
photo by sasint via Pixabay

The cost of health care is crushing many Americans, which is not news to anyone paying attention. What may surprise you is that many of those getting crushed by medical debt have health insurance.

The latest survey of employer benefits from the Kaiser Family Foundation found that the average price of a family health insurance plan surpassed $20,000 in 2019. For individual coverage, the annual average passed $7,000. These figures represent a 5% and 4% rise, respectively, from 2018. The average family premium is up 54% since 2009. Those are figures that should cause everyone concern. As Jordan Weissmann put it in an opinion column for Slate, “Insuring a single family for a year costs almost as much as a Honda Civic.”

If you are in charge of paying for 100% of your own health care premiums and you do not qualify for government subsidies, you are well aware of the burden that health care costs represent. But workers who receive their care as benefits should feel equal alarm. Even if your company covers all or most of your care, every dollar a company pays to an insurer is a dollar it can’t pay in salaries and wages.

Unless something changes, there is no inherent ceiling for how expensive health care in America can get. Just as college costs continue to climb, an average family health insurance policy could cost $30,000 in 10 years, or $40,000 in 20 years. The National Business Group on Health projects that large U.S. employers will see a median rise of 6% in health care costs for 2020, while small and mid-sized employers may see sharper hikes. In response, some companies are getting out of the game of providing insurance altogether, while others are offering higher deductible plans or increasing the portion of premiums covered by employees. Employers are even involving themselves directly in their workers’ private health decisions in an attempt to get insurers to cut them a break.

Under the circumstances, medical debt is likely to continue to balloon in this country. Americans without health insurance have risked incurring major debt for a long time, but now high deductibles and out-of-pocket maximums mean that many people with insurance also risk shouldering medical costs they can’t afford, especially for emergency care. The opacity of our health care system makes shopping around for affordable care unrealistic in many circumstances. Balance billing practices, for example, can lead to nasty surprises when it comes to out-of-network care. That surprise is doubly unpleasant if it turns out you unwittingly saw an out-of-network provider at an in-network facility. The potential costs of forgone preventative care, which can lead to more severe – and costly – problems in the future, are harder to measure but also substantial.

It does not take much to create a vicious cycle where medical bills are concerned. A recent study from Bankrate found that only 40% of Americans have sufficient savings to cover an unexpected expense of $1,000. Meanwhile, high-deductible plans have deductibles of at least $1,350 for individuals and $2,700 for families. According to the Kaiser Foundation, only one in 10 workers in a high-deductible health plan has saved more than $5,000 in an associated health savings account. Once an unpaid bill starts accruing interest, medical debt can quickly become insurmountable.

The results are arresting, if not surprising. A study from Health Affairs published in 2018 found that one in six Americans had at least one past-due health care bill on their credit reports. A 2016 study published in Health Affairs found that a third of cancer survivors had gone into debt as a result of their treatment. The country’s collective medical debt is estimated at about $81 billion. In the Centers for Disease Control and Prevention’s annual survey, almost three-fourths of Americans between the ages of 20 and 65 said that they had health insurance but still could not pay their medical bills.

Individuals and organizations have tried a variety of approaches to cope with the high costs of health care. Patients have turned to crowdfunding and health care sharing ministries to try to supplement or replace high insurance costs. Many providers will work with individuals to set up a payment plan, though this relies on customers knowing enough to ask for help resolving a bill. Providers also sometimes won’t budge.

Bernie Sanders has proposed wiping out the entire $81 billion of U.S. medical debt at once in conjunction with his Medicare for All plan. His proposal would fund this measure with a corporate tax based on CEO compensation. It is far from certain that Sanders could actually achieve this plan, even if he won both the Democratic nomination and the presidency. But the suggestion alone illustrates the scope of the problem.

Unlike student loan debt, medical debt can be discharged in bankruptcy. Because of this, the $81 billion of outstanding medical debt is much lower than the current eye-popping estimate of more than $1.5 trillion in U.S. student loan debt. But our system creates a constant cycle of Americans receiving care that they can’t afford, leading to debt, often leading to bankruptcy. Wash, rinse, repeat. A study published in the American Journal of Public Health found that medical issues contributed to 66.5% of American personal bankruptcies between 2013 and 2016. While bankruptcy can give individual borrowers a fresh start, if often at a high price, it also feeds the larger problem. To the extent that providers are not paid after bankruptcy, they will continue to raise the cost of care for everyone else.

As health insurance gets more expensive and many employers offer less comprehensive plans in order to keep compensation costs under control, the issue of medical debt will affect more and more Americans. Eventually, we may reach a tipping point. The Affordable Care Act didn’t fix all of the problems we face, but there are many other viable ideas out there. In the coming years, I hope that our elected officials have the courage and conviction to push aggressively for change. Sometimes the cure is worse than the disease, but I’d say this isn’t one of those cases.

Managing Vice President Paul Jacobs, of our Atlanta office, is among the authors of our firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. He wrote Chapter 12, "Retirement Plans"; Chapter 15, "Investment Approaches And Philosophy"; and Chapter 19, "A Second Act: Starting A New Venture." He also contributed to the firm’s book The High Achiever’s Guide To Wealth.

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