Medical debt totals at least $140 billion nationally and is the most common type of past-due bill for which consumers report being contacted by debt collections. The pandemic only increased the debt load for many Americans, despite insurer cost-sharing wavers. And, given that more than three in five adults struggle to pay medical bills even with insurance, it's clear that insurance alone does not provide adequate protection against medical debt.
New solutions and approaches are needed, and insurers have an important role to play. Existing strategies addressing medical debt - such as stopping lawsuits, negotiating repayment terms, removing it from credit reports and even charity buyouts of debt — are important but do little to actually prevent debt.
A new series of reports from the Financial Health Network, the nation's leading authority on financial health, and the Robert Wood Johnson Foundation finds that healthcare system actors, including hospitals, insurers and employers, can all intervene earlier to curb the risk of debilitating medical debt.
Medical Debt is a Social Determinant of Health
Medical debt forces tradeoffs in basic needs, such as choosing between food and paying off debt, disrupts physical and mental health and often leads to litigation, property seizure, wage garnishments, reduced credit scores and even bankruptcy. The financial implications are far-reaching, limiting consumers' ability to buy homes, pay for education, advance careers, build savings and pay off other debts, such as credit cards and student loans. Individuals with medical debt have triple the incidence of mental health conditions such as anxiety, stress and depression. And those with medical debt are more likely to forgo necessary care due to costs, potentially exacerbating health conditions and increasing healthcare costs down the line.
Worse, the burden of medical debt and its adverse implications disproportionately affect those with lower incomes, those who experience chronic illness and disabilities and Black, Latinx and indigenous households. For instance, 28% of Black and 21% of Hispanic households have medical debt, compared with 17% of white households. This creates a spiral wherein those least able to manage debt continue to incur more of it in their pursuit of medical treatment.
See also: Why Financial Wellness Is Elusive
Insurers as the First Line of Defense
Health insurers play an important role in stopping medical debt before it starts. This is especially true among the commercially insured, because the way in which members understand, use and experience their insurance can lead to unexpected medical debt.
Unfortunately, most members do not fully understand insurance terms, and lower health insurance literacy -- the ability to understand, select and use insurance -- is associated with higher medical debt. In fact, more than one in four Americans report forgoing care because they are unsure what is covered by their health plan.
Further, members can be caught in the middle or left with excessive medical bills when providers and insurers do not settle disputed claims quickly. Even worse, more than a quarter of adults in employer-sponsored plans are now considered underinsured.
Not only does acting to prevent medical debt fit under insurers' efforts to address the social drivers of health, but it can help to improve overall health and health equity. Our research found four key actions insurers can take to curb medical debt, improving the health of their members and the larger healthcare ecosystem:
- Aid members in plan selection, and ensure members understand key health insurance terms. Insurers need to support members in selecting plans based on their particular health and financial circumstances with decision support tools, and ensure members understand health insurance terms.
- Inform members of out-of-pocket expectations and how to navigate lower-cost options through effective price transparency resources. Insurers have a responsibility to support member decision-making by providing user-friendly, accessible and plain-language explanations of out-of-pocket expenses so members can plan for and navigate these costs. Knowing the cost of care in advance allows members to better budget for those payments.
- Encourage primary and preventive care services by reducing or eliminating associated out-of-pocket expenses. This can prevent the need for unnecessary or costly care that puts members at risk for medical debt. This is particularly important for members with chronic conditions who tend to require more frequent and sometimes more customized care to manage their conditions. The same may be true for members experiencing long COVID symptoms.
- Improve claims adjustment and prior authorization processes. Insurers should coordinate with providers to ensure disputed claims are settled quickly. Insurers should also streamline prior authorization, which can often be burdensome for members and providers and create delays in care.
These actions can lower members' risk of medical debt and should be part of insurers efforts to create more responsive, member-driven care. Doing so can improve member experiences, improve health and health equity, prevent members from catapulting into financial ruin, drive use of higher-value and lower-cost care and even help insurers build a competitive advantage.
You can read the full Insurance-focused report, as well as the other reports in this series on medical debt as a social determinant of health, here.