Widespread medical debt is a uniquely American problem.
The United States has by far the greatest burden of health care bills and individuals.
7.4% of US residents faced catastrophic health care bills each year.
That's more than double the next closest country.
100 million people in this country currently have some kind of health care debt.
That's about 40% of adults.
U.S. medical debt totaled at least $195 billion in 2019.
Having insurance doesn't always insulate people in the U.S.
from debt. Over 90% of the U.S.
population has some kind of health insurance, but medical debt is still a persistent issue.
Basically, our health care system is creating debt on an industrial
scale.
The history of medical debt is basically a history of the changing answer to the following question: When the
patient can't pay the bill, who foots it?
You've got two things that have been going on.
One, high prices of medical care.
And number two, patients that have to shoulder more of the burden of paying
those bills that 20 or 25 years ago might have been covered mostly or entirely by their
health insurance plan.
The rise of the insurance industry may have been a catalyst for price inflation.
1965.
That's when the inflation bomb was lit.
That's when it really went off because that just kick started the third party payer
system.
So how did the medical debt crisis begin in the U.S.
and how can we fix it?
Health-care costs have been climbing for the past century as the system has gotten more complicated.
The U.S. was spending nearly seven times as much per capita in 2020 on health care than it did in
1970. Before the recent spike in inflation, health-care spending had consistently
outpaced overall consumer prices.
It used to be that health care was only 10% of our economy.
Now it's about 20% of our economy.
There are many complicated reasons for the rise in the cost of care, such as not prioritizing preventative
care or a lack of price transparency.
But one thing that kick started inflation that may seem counterintuitive was the introduction of health
insurance.
It was when you get this third party payer system where the patient doesn't have to pay all of the
cost of it directly, the insurer pays a chunk of it.
That gives you relentless upward pressure on pricing, because if you're going to get
paid, why not get paid some more?
By the late 1960s, most Americans had some form of health insurance, such as a hospital based plan,
a government plan like Medicare or Medicaid or insurance through their job.
Medicare at the time had reimbursements that were quite generous, and hospitals and
physicians took advantage of those.
They were able to charge them basically what they saw fit.
This insurance concept is called fee for service.
That means for every service that your doctor delivers to you, that doctor
is billing for each individual thing.
And that can create an incentive called provider induced demand,
which is basically that your doctor has an incentive to do more things to you.
There are many different ways that health care systems are organized around the world, whether
the system is more like the UK, where it's a government system or more like Germany or
the Netherlands. These countries all do one thing that we don't, and that is put effective
limits on how much a health insurance plan can require people to pay out of pocket
when they go to the doctor or the pharmacy or the hospital.
By the 1980s, there was a push, particularly by the Reagan administration and by Congress at the time, to
rein those costs in.
A 1983 law passed under Reagan changed the way Medicare reimburse doctors and
hospitals. This made it so hospitals received a fixed rate for care rather than getting to bill the
government whatever they wanted.
If they spent below the fixed rate, they made a profit.
Otherwise, they operated at a loss.
About 10% of hospitals closed in a period during the 1980s, in part
due to those declining reimbursements.
It was a real period of struggle.
Hospitals really were hard up to pay their bills.
Some of them turned to much more aggressive medical debt collection and became much less
forgiving of patients in debt.
They would charge patients, and instead of allowing for lenient payment
plans or discounted care, they instead said, Please put it on your credit card.
The 1990s was the culmination of this effort to rein in costs in Medicare and
Medicaid. And then at the same time, the growth of the HMO movement and
other efforts to rein in the costs of private health insurance.
HMOs or health maintenance organizations are a type of health-care plan that requires patients to see only
specific doctors if they want their insurance to pay for it.
There's no out-of-network coverage, and they must get approval to see specialists.
The network is much smaller and you have no benefits.
If you go out of network, you have full benefits.
If you stay in network and follow the rules, if you will.
By that nature, the HMO is able to negotiate better prices because they would channel
patients towards the contracted providers.
And so other providers are worried about losing patients, so they contracted to and accepted those
prices.
Hmos grew rapidly in the 1970s and '80s until there was a backlash in the 1990s.
Beginning in the mid '90s.
A lot of people have been put into an HMO by their employer, like it or not,
and we're going to have to change providers.
They got really upset and then the media grabbed it and started.
Running an alternative health coverage model called PPOs or preferred provider organizations
began to take the place of HMOs.
PPO plans provide partial coverage to go to out-of-network doctors, and also usually don't require
patients to get approval to see specialists.
That shift took place and prices were starting to rise again because of it.
There was less control over it because it was a wider network.
The insurance industry turned back to something they had started to do already back in the
'70s and early '80s, which was increasing cost sharing to get people to
change their behavior.
That was initially the primary motive for the cost sharing is to make you think twice about something.
While health care costs continued to rise, patients were being asked to take on more responsibility
for a larger portion of the bill at the point of care.
In the early 2000s, federal legislation paved the way for a major restructuring of how
insurance plans shared costs.
Now I'm honored and pleased to sign this historic piece of
legislation.
The 2003 Medicare Modernization Act further increased the
pressure on patients and on hospitals by helping in the proliferation of high
deductible health insurance plans.
A deductible is the amount of policyholder has to pay upfront before their health insurance plan kicks in.
The George W. Bush administration said that patients would be better consumers, more
discerning consumers of health care if they had some skin in the game, if they had to pay more
upfront at the point of care.
The theory – touted by many who knew better — was going to get skin in the game.
Now, since you're going to have to pay a lot of this money out of your pocket and there's going to be this
big gap in coverage, you're going to pay attention.
You're going to be an informed consumer.
If you're well-educated, and it's a kind of a routine thing.
Yes, you can do your research.
You're having watching chest pain or you've been in a crash or you just don't
know. And the doctor says you need this type of pain treatment.
You know, what are you going to do?
Say, I want to look that up and do my own research?
No.
The average deductible for an individual in 2022 is around
$760, which is double what it was in 2006 when adjusted for
inflation.
This dramatic rise in high-deductible health insurance predated the Affordable Care Act,
but the Affordable Care Act didn't do anything to really arrest that change.
More and more of us are ending up in these health insurance plans that
require us to pay thousands of dollars out of pocket before our coverage kicks in.
Roughly 70% of lower income adults said they wouldn't be able to afford a $500
unexpected medical bill.
Nearly a quarter of those in households with an income of at least $90,000 also said
they wouldn't be able to immediately afford it.
It doesn't really take a Nobel Prize in economics to realize that if most people can't afford a
$500 bill and the average deductible on a health plan that someone gets at
work is north of $1,500 now, that's going to create a problem because you can't
walk into an emergency room or a hospital in this country and get out
usually for less than a few thousand dollars.
We are done. There's no question that
as bad as the medical debt situation in the United States is now, it would be worse
if not for the Affordable Care Act.
One of the important things that the Affordable Care Act did was it provided federal funding
to states to expand Medicaid to working-age adults who are
not historically covered by this program.
But as a result of legal challenges to the Affordable Care Act, the decision
of whether to expand eligibility was left up to states, and most states have done it.
But 11 states still have not expanded eligibility.
And if you look at where medical debt is concentrated in this country, it is concentrated
in the South, which is where Medicaid expansion is least common.
So the effect of the ACA on medical debt was largely through the expansion of Medicaid.
But at the same time, that law did allow for patients to purchase high deductible
health insurance plans on the marketplace, so it didn't stem the tide of that problem with
insurance itself.
There's no question that providing health insurance is a critical
protection against medical debt.
The issue just is whether or not it's adequate.
People may also incur debt if they're hit with a surprise bill, meaning they thought their insurance
company would cover a specific medical expense, but it didn't.
A federal law called the No Surprises Act went into effect January 2022, hoping to
address that problem.
Now, people who inadvertently go to an out-of-network provider,
for example, by going to an in-network hospital but being seen by an out-of-network doctor,
that patient is held harmless and then it's up to the insurance company and the doctor to kind of work out
how much gets paid to them.
I think it's a little early to know whether the No Surprises Act is working as intended.
It doesn't eliminate the problem entirely.
It creates a system that is designed to protect patients and force a system of
arbitration and negotiation between payers and medical providers
that may be out-of-network in large part because the medical industry was so opposed to anything that
would actually bar this practice, which I'm not a doctor, but it seems
pretty hard to defend the practice of intentionally subjecting patients
to medical bills that would surprise them.
And yet that, quite frankly, was a business model for an embarrassingly large
number of physicians in this country.
U.S. policy attempts to address medical debt so far have been incremental and piecemeal.
There is no one answer.
It's going to have to be a number of things being done at once.
It's going to be painful for somebody, whatever we do.