While the goal of the American health care system is to improve health and well-being, it triggers financial hardship for many people. One in five U.S. households have incurred medical debt, making it the most common form of unpaid bill for which consumers are contacted by debt collectors, and a reason why many people forgo getting the health care they need.
Existing strategies — such as stopping lawsuits, negotiating repayment terms, charity buy-outs of debt, and even removing medical debt from credit reports — are laudable and help some consumers manage their debt. The Biden-Harris administration’s recent Executive Order will offer additional help by minimizing the financial implications of medical debt, such as harming consumers’ credit reports.
But these efforts do not go far enough to keep medical debt from happening in the first place. In fact, the administration’s Executive Order includes holding health care providers accountable for harmful practices that lead to medical debt. New solutions are needed to prevent medical debt and its adverse impacts on consumers’ financial situation, health, and overall well-being.
The Financial Health Network, the organization I work for, has published a series of reports on preventing medical debt, with support from the Robert Wood Johnson Foundation and the input of various health care stakeholders. The reports show that health care actors — hospitals, insurers, employers sponsoring insurance, and others — can all intervene earlier to curb the risk of debilitating medical debt. The reports, which are referenced in the Executive Order, outline specific steps and strategies various health care actors can take to prevent this type of debt among their patients.
Medical debt is a social determinant of health and driver of health inequities
As hospitals and health systems seek strategies to improve equity, addressing medical debt should be a top priority. Most consumers can’t afford an unexpected expense of $400 or more, and health insurance does not always protect consumers from unexpected out-of-pocket expenses and co-pays that can lead to debt. About two-thirds of those with medical debt or problems paying medical bills report that they or the household member who incurred the bill was insured. Moreover, research shows that the stress associated with debt is associated with triple the incidence of mental health conditions such as anxiety, stress, or depression.
Medical debt also has far-reaching implications for an individual’s or a family’s financial stability. It forces tradeoffs between paying debt and affording other items necessary to manage day-to-day needs and to build wealth. This includes basic necessities like food and housing and other life costs, like paying for education, investing in the advancement of careers, building savings, and paying off or avoiding other debts, such as credit card debt.
The burden of medical debt and its adverse implications disproportionately affect those who are in worse health, those living with disabilities, and people of color. In fact, 28% of Black households and 21% of Hispanic households have medical debt compared to 17% of white households. Moreover, communities of color tend to experience higher median amounts of medical debt and are more likely to experience overall financial strain, which the pandemic made worse.
How hospitals and health systems can intervene before patients incur debt
Medical debt is often the byproduct of opaque health care prices, high out-of-pocket costs, misunderstandings over what insurance will pay, limited provider options or networks, unexpected health care events, and lack of awareness of or eligibility for charity care programs. And while policy solutions are needed to address the “upstream” drivers of medical debt, including rising costs of care, higher health care cost-sharing, and structural factors driving inequities, hospitals and health systems shape patient care experiences that can ultimately lead to medical debt and its devastating impacts.
Our reports identify three key opportunity areas for hospitals and health systems to help patients prevent medical debt, and outlines specific, actionable strategies they can take:
Improve financial assistance and repayment programs. One way hospitals and health systems can prevent medical debt is by expanding, simplifying, and making innovations in both financial assistance and flexible repayment options, and ensuring they are widely and easily available to all — including those who are insured. Prompt action in this area can be quick wins for hospitals and health systems, and may make more financial sense than pursuing debt collections.
Kaiser Permanente, for example, offers financial assistance to uninsured and underinsured patients who earn up to 400% of federal poverty level; patients experiencing high medical expenses relative to their income may also be eligible. Kaiser also created a Financial Assistance Policy Council with representatives from various departments across the health system, such as financial and community health, that meets regularly to assess and adjust the company’s financial assistance program. This council reports to an accountable leader at the executive level.
The Financial Health Network’s reports also strongly recommend presumptively assuming eligibility for financial aid and meaningful constituent involvement in setting financial assistance policies. Hospitals and health systems should also not charge uninsured, underinsured, and out-of-network patients prices that are higher than those paid by in-network insurers.
Support patients in informed decision-making. Hospitals and health systems must support patients in making informed decisions about planning and paying for their care. This includes using — and improving — price transparency tools, ensuring patients understand their out-of-pocket costs, incorporating cost-of-care conversations in provider-patient interactions, helping patients navigate their options, and ensuring they feel supported in making those decisions. Clinicians, navigators, revenue cycle staff, and other care team members and staff play a role.
Providence St. Joseph Health illustrates this approach with its pilot of a software solution intended to improve access to care for uninsured and underinsured patients, optimize financial navigators and cost-of-care conversations, and better target community benefit investments. This data-driven approach helps Providence streamline benefit investigation, out-of-pocket cost estimation, and enrollment in and management of approved financial assistance programs.
Proactively identify and support patients at risk of medical debt. Hospitals and health systems can reduce patients’ medical debt by becoming more proactive in identifying equity gaps, using patient-centered approaches for accessing ability to pay, and directly connecting patients to financial assistance and repayment options. For example, community health needs assessments should proactively explore the extent to which community members struggle with medical bills, medical debt, and ability to pay for unexpected health care costs.
By working to prevent medical debt, hospitals and health systems, in tandem with insurers and employers, can not only improve patient wellness but also improve patient care experiences, increase value to patients, build patient trust and loyalty, and signal a commitment to patient and community equity and well-being.
Michelle Proser is senior director of the Financial Health Network’s health care market, and the former director of research at the National Association of Community Health Centers.