Surveys Note Americans’ Medical Debt Grows as Economy Worsens

By Staff Report

Nov. 3, 2008

The economic downturn is leading to an increase in unpaid medical bills that large employers may end up subsidizing in the coming months through premium increases and spikes in medical costs.

Saying they are forced to choose between food, housing, transportation and other necessities, Americans are increasingly unable to pay their medical bills, leading many into deep medical debt, according to several surveys released recently. The Kaiser Family Foundation reported in October that one in three Americans report trouble paying medical bills, while 18 percent of Americans say their medical bills have totaled more than $1,000 in the past year.

The weakening economy isn’t affecting only the uninsured. Medical debt is particularly common among Americans with high-deductible plans, the Commonwealth Fund reported. The New York-based health policy research organization said 53 percent of adults whose deductible equaled or exceeded 5 percent of their income “incurred medical bill burdens and debt.”

Roger Deshaies, CFO of Fletcher Allen Health Care, a hospital system in Burlington, Vermont, said charity care has increased 10 percent in the year ended September 30 because many patients with high-deductible plans are unable to pay the deductible.

“If they have a deductible of $1,500, their chances of meeting that is limited at a time when heat and fuel are going up considerably,” he said.

The hospital system, which projects charity care costs will double next year if the economic downturn deepens, is already approaching health insurance companies seeking increases in the amount they are reimbursed for care provided to people with employer-sponsored health plans.

Tom Beauregard, a product development leader at UnitedHealth, said hospital debt “does put pressure on commercial rates and ultimately premium levels” for employers.

In addition to bad debt, premiums are also being pushed higher by increased use of health care services among people who have health insurance but are worried they might lose their jobs or benefits, said Linda Havlin, worldwide partner and global leader for research at Mercer. Small and midsize employers, many of which renew their health care contracts in the fall, are already seeing double-digit spikes in premium costs, Havlin said.

Because health insurance trends vary among states, not all insurers have been besieged with requests from hospitals for reimbursement rate increases. Nonetheless, health insurers are likely to resist such requests.

“We haven’t experienced significant rate increases because of high-deductible plans, nor do we plan to compensate the hospitals” if they are unable to collect the money that patients owe them, said John W. Kennedy, COO of Blue Cross Blue and Blue Shield of Kansas City.

Cigna spokeswoman Amy Turkington said the insurer helps hospitals collect payments from patients with high deductibles through a process called automatic claim forwarding, which deducts the amount a patient owes a hospital from that person’s health care spending account. Turkington said the insurer has permission to automatically withdraw funds owed to a doctor or hospital from 85 percent of its members that have flexible spending accounts, health savings accounts or health reimbursement accounts.

Rural areas and small towns where fewer large employers exist could be particularly susceptible to rate increases because small employers are more likely to offer health insurance with high deductibles.

Deshaies recognizes that asking health insurers to reimburse hospitals more for medical care will increase costs for employers and ultimately for patients—possibly exacerbating the amount of charity care the hospital provides. But he says his hospital’s short-term financial needs outweigh those long-term consequences.

“The insurance companies will push the story that you are only creating a spiral that will come back to you anyway,” he said. “To a certain extent, over time, that’s true, but not immediately.”

—Jeremy Smerd

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