Majority of debtors to US hospitals now people with health insurance

People with health insurance may now represent the majority of debtors American hospitals struggle to collect from, according to medical billing analysts.

Related: House bill to make US healthcare costs transparent unlikely to bring down prices

This marks a sea change from just a few years ago, when people with health insurance represented only about one in 10 bills hospitals considered “bad debt”, analysts said.

“We always used to consider bad debt, especially bad debt write-offs from a hospital perspective, those [patients] that have the ability to pay but don’t,” said Colleen Hall, senior vice-president for Kodiak Solutions, a billing, accounting and consulting firm that works closely with hospitals and performed the analysis.

“Now, it’s not as if these patients across the board are even able to pay, because [out-of-pocket costs are] such an astronomical amount related to what their general income might be.”

Although “bad debt” can be a controversial metric in its own right, those who work in the hospital billing industry say it shows how complex health insurance products with large out-of-pocket costs have proliferated.

“What we noticed was a breaking point right around the 2018-2019 timeframe,” said Matt Szaflarski, director of revenue cycle intelligence at Kodiak Solutions. The trend has since stabilized, but remains at more than half of all “bad debt”.

In 2018, just 11.1% of hospitals’ bad debt came from insured “self-pay” accounts, or from patients whose insurance required out-of-pocket payments, according to Kodiak. By 2022, the proportion who did (or could) not pay their bills soared to 57.6% of all hospitals’ bad debt.

Callout

Kodiak receives every billing transaction for more than 1,800 hospitals across the US, a little less than one-third of all hospitals in the country. It was able to perform the analysis by looking at this in-house database.

The cost of healthcare in the US is a perennial political concern – it eats up more than 18% of gross domestic product, far more, and often for worse health outcomes, than in other peer democracies. As much as 31% of the cost of US healthcare is probably driven by the administration of complex bills that now beset the public.

Now, medical debt and its impact on Americans’ lives is an issue of increasing political perseveration. A recent investigation by KFF Health News and NPR found more than 100 million Americans have medical debt of some kind, debt which often forces families to make heart-wrenching sacrifices.

In part, those sacrifices are driven by hospitals’ extraordinary collection practices. Hospitals refer patients to aggressive debt collectors, use state courts to garnish wages, place liens on people’s homes and report debt to credit agencies, which can drastically worsen future job and housing prospects. Although there are some attempts to rein in these practices, billing analysts like Szaflarski say they do not address the core issue – health plans designed by insurers which force hospitals to become debt collectors.

“These stories really grind my gears,” said Szaflarski. “The idea of patient responsibility” – those deductibles and coinsurance requirements – “was not an idea created by healthcare providers. They were vehicles created by payers,” referring to insurers.

Ariel Levin, the director of coverage policy for the American Hospital Association, says the organization is discussing multiple solutions – such as removing hospitals from the billing equation entirely – to challenges they say are created by insurer decisions.

“Something else we’re exploring recently is how to remove providers from the cost-sharing altogether and require health insurers to collect it,” Levin said.

Even seasoned professionals such as Levin have found it hard to decipher hospital bills, such as when her baby needed surgery.

“It was really hard to look at my plan, even though I should be able to read the fine print and understand,” Levin said.

Deductibles have come under particular scrutiny as the share of workers subject to high deductibles has risen in the last decade. There is not a single definition for a high-deductible health plan, but typically such plans require a payment of $1,000 or more before insurance kicks in for a single person – though costs can soar far above that. Because deductibles reset every year, they can be especially punishing for chronically ill patients – and they can be far more expensive than $1,000 a year.

“Obamacare” plans – that is insurance plans people buy as individuals on state exchanges – are notorious for such high deductibles. Federal regulations allow insurers on state exchanges to charge an individual as much as $9,450 out of pocket in 2024 – not including monthly payments called premiums. That limit is predicted to grow to $14,100 by 2030. And because healthcare costs are rising faster than wages, those expenses are predicted to eat up an ever-larger share of Americans’ paychecks.

Notably, it is unclear whether rising costs for patients alone explain the breaking point the Kodiak analysis saw in 2018. George W Bush signed an act in 2003 allowing insurers to sell such plans, and they quickly grew to represent about 30% of the private employer insurance market by 2012. That proportion remains about the same today, and “cost-sharing” has continued to increase across all kinds of health plans.

“We have seen now that a lot of the debt we purchase and get rid of is also for insured patients,” said Ruth Landé, vice-president of hospital relations at RIP Medical Debt, and the former leader of a hospital billing team. RIP Medical Debt purchases hospitals’ debt portfolios and forgives the debt – part of an effort to relieve Americans of a burden many see as tacitly unfair.

Further, patient advocates criticize bad debt as a metric in its own right. Hospitals view bad debt as bills patients could pay but choose not to. But hospitals rarely screen patients for their ability to pay, and a raft of evidence shows patients who experience medical debt are often low-income and would probably qualify for discounted or free care if they went through hospitals’ lengthy application process.

Landé said when RIP acquires debt portfolios and matches accounts with third-party income data, it often shows the vast majority of patients with past-due debt would probably be eligible for free or discounted care if their finances were assessed. RIP provides debt relief to people with income that is four times the federal poverty level or less.

“It’s obvious to [hospitals] that if someone comes to them and is uninsured there’s a need there,” said Landé. “But if they’re insured,” and can’t afford their insurance, “their processes and systems are not designed to detect that need.”

• This article was amended on 11 January 2024 because the American Hospital Association’s Ariel Levin did not say all hospitals would prefer to remove themselves from the billing equation; rather, Levin discussed that as a possible solution to some of the challenges created by insurer decisions.