JANUARY 4TH, 2022

The Harsh Realities of America’s Bad Medical Debt Problem

People, businesses, and healthcare providers alike are facing a financial crisis resulting from the skyrocketing costs of care. When folks are unable to pay their medical bills, those amounts become bad debt.

In 2014, a Kaiser Family Foundation report showed that 1 in 3 Americans had difficulty paying their medical bills. A 2020 survey conducted by Debt.com found that about 46% of Americans had unpaid medical debt; in 2021, the number increased to 50%.

In short, about half of all Americans struggle with the financial side of healthcare. Their insurance might not cover certain treatments, or they could have a high deductible to meet before their insurance kicks in. When people are unable to pay their medical bills, this impacts their credit, makes it more difficult to focus at work, and could even lead them to file for bankruptcy.  

While individual consumers shoulder the brunt of this burden, bad debt hurts everyone. Employers face decreased productivity from employees whose finances and stress levels spiral out of control. These debt problems also have a tremendous impact for the healthcare systems and providers trying to care for their communities; medical providers waste resources chasing unpaid bills, they suffer financial losses due to write-offs, and healthcare costs continue to inflate.

Unfortunately, this problem is far more prevalent than most of us think.

An Issue That Transcends Income Brackets

During the 2020 election cycle, pundits widely cited $81 billion in outstanding U.S. medical debt. That is already a staggering figure, but it turns out the true amount might be far higher. According to research by Stanford economist Neale Mahoney, the nation’s medical debt could be closer to $140 billion. Mahoney suspects the discrepancy in debt projections is due to a narrower definition of medical debt and a limited sample of people used to get the initial figure.

These debts might be more prevalent among lower income brackets, but they’re not limited to poorer populations. According to Mahoney’s research, almost all income groups saw their debts rise between 2009 and 2020. This is particularly true in states that did not opt into Medicaid expansion in 2014.

This creates an overwhelming problem that affects all layers of society. For individuals, the problems can compound over time as it becomes increasingly difficult to focus on their daily lives. For hospitals and healthcare providers, it spells serious financial issues due to unpaid bills. This issue was further exacerbated by the COVID-19 pandemic, with a 2020 survey suggesting that up to 48% of hospitals and health systems dealt with resulting increases in bad debt and uncompensated care.

Shockingly Close to Crisis

Given the prevalence of medical debt in the U.S., it would be natural to wonder exactly how much debt is too much for the average family.

According to a 2021 report from the Federal Reserve, nearly 40% of all adults would be unable to cover an unexpected expense of $400. That same report found that 23% of adults had skipped medical care in the past year due to an inability to pay for it.

A poll conducted by Debt.com earlier this year found that 34% of respondents had between $1,000 and $5,000 in medical debt; about 23% of respondents reported having more than $5,000 in debt. The majority of that debt came from diagnostic tests, closely followed by hospitalizations, emergency room visits, and outpatient services.

This mountain of unpaid debt has consequences for medical providers, who often have no choice but to raise costs to offset the portion of care that goes unpaid. This creates an unfortunate cycle of rising costs leading to unpaid bills, unpaid bills leading to bad debt, and bad debt leading to rising costs. Not to mention the huge amount in administrative resources hospitals and health systems spend trying to chase down debts — only to eventually write them off.

Stopping the Cycle

There’s no quick fix to the healthcare world’s bad debt problem, but there are steps that can help set us in the right direction. In addition to identifying potential bad debt early in the process and providing greater transparency regarding care costs before treatment, simply providing people with a financially healthy way to pay for their care can do a world of good.

An employer- and health plan-sponsored benefit like Paytient can help people pay any out-of-pocket costs to healthcare providers — whether it’s a doctor, a dentist, a pharmacist, or an optometrist. When someone uses their Paytient card to cover the cost of care, they have the option of splitting that transaction into a payment plan without any interest or fees.

In turn, this should help lower healthcare costs across the board. When medical providers aren’t chasing down invoices and struggling to get paid, prices stay down. People enjoy the dignity and peace of mind that comes from eliminating debt, and all of society benefits.

To learn more about Paytient, contact our sales team.

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