Medical Debt: A Growing Threat to 1 in 5 Americans’ Financial Security

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Out of all the debt one can accumulate, medical debt has to be the most frustrating. Yes, all debt is frustrating. But medical debt? It can’t really be planned for, the charges are often bloated and murky, and the balances increase faster than you can say “emergency room.” If you’ve found that medical debt causes you more physical pain than the medical affliction itself, you’re not alone.

Not only is medical debt a growing problem, but it’s also increasingly being charged off to collections. A recent article in the New York Times states some alarming statistics:

“Richard Cordray, director of the federal Consumer Financial Protection Bureau, has noted that half of all accounts reported by collection agencies now come from medical bills, and the credit record of one in five Americans is affected.”

One in five Americans: that means if you haven’t yet been affected by medical debt, then at least one person in your social circle has! Why is this an important statistic? Because medical debt (like medical issues) is something that we can all easily put into the mental box of, “I don’t have to worry about that. Nothing’s going to happen to me.” But that’s simply too much of a gamble to take. In fact, even the smallest of medical issues could lead to bills for months to come.

Read on to learn more about the growing medical debt problem in the U.S., legislation that’s working to change the problem, and the information you need to know in the event that you have your own medical emergency to handle.

Confusion in Medical Costs

When it comes to medical costs, every step of the way can be confusing. When you haven’t yet gone into the medical center, hospital, or doctor’s office, you won’t have any idea what your problem is or how much it may cost to treat. In fact, you won’t even know how many visits you’ll need to discover the problem, let alone treat it.

Once you’re admitted, you’ll likely be given various tests and medicines for undisclosed costs. Again, you probably won’t know which tests you’ll be given until it’s time to sign a consent form, how many tests and prescriptions you’ll be given, or how long the road to recovery will be (as well as how many visits it will take to get on the road to recovery).

After you’ve started treating the problem, the medical costs only get more painful. In start pouring the letters from insurance companies: bills, statements that look like bills but aren’t, disputes as to what’s covered by insurance and what’s not, and more. Not only will it be difficult to know how much you owe, it can also be unclear as to who you owe. And that’s how accounts can start going into collections without you even realizing it.

The Growing Problem of Medical Debt

We’ve talked before about the inherent difficulty in medical debt: something that often places us in a position to choose our health or financial stability. Unfortunately, the problem doesn’t seem to be going anywhere. Elisabeth Rosenthal talks about why this issue is so murky:

“With medical expenses, unlike most other purchases, you generally don’t know the price the hospital will charge in advance. And the subsequent bills and insurance statements — so-called explanations of benefits — are often layered in obfuscation and pressure tactics.”

Sound familiar? As if that weren’t bad enough, these unpredictable costs could have a domino affect on your entire financial picture.

For one thing, the high cost of medical bills can take you from financially solvent one day to nearly broke the next. But if some of that debt gets charged off without you realizing it, your credit score will take a nose dive. A credit score decrease has consequences like not being able to purchase a home or refinance your home to save money and to the mental distress of constant collections calls to your home and office.

Wondering how long it takes for medical debt to go to collections? Or how it can happen without you realizing? The same article by Rosenthal digs deep into the cause of this growing issue:

“Part of the problem is that there are few standards governing medical debts: One billing office might give you — or your insurer — 60 days to pay before pursuing collection. Another might allow you to pay off a bill slowly over a year. Many will sell the debt to collection companies, which typically take a cut of the proceeds and decide when or whether to report unpaid debt to credit agencies.

The problem is accelerating for several reasons. Charges are rising. Insurance policies are requiring more patient outlays in the form of higher deductibles and co-payments. More important, perhaps, is that while doctors’ practices traditionally worked out deals for patients who had trouble paying, today many doctors work for large professionally managed groups and hospital systems whose bills are generated far away, by computer.”

With this system, it can seem like everything is working against you. So what can be done to fix the problem? The government is on the task.

The Government’s Latest Role in Treating Medical Debt

While there are multiple initiatives in the hopper to fix the problem of medical costs, there has been recent news of the government trying to fix one particularly pernicious area of medical cost confusion: understanding the difference between a hospital stay and, well, what’s not a hospital stay.Why does that matter? Because insurance covers outpatient status and inpatient status differently. And if you’re on Medicare, then you’ll pay more out of pocket for your outpatient status.

Reported by Ann Carrns in the New York Times, patients are learning that what looks and feels like a hospital stay can actually be categorized as being in “observation status.” In other words, you may think you’ve been admitted – and could even be in a bed for a day or more – but you’re actually classified as outpatient

The worst part is, there’s not a whole lot you can do about it. You can ask your nurse or doctor if you’ve been admitted and, if not, you can request that you be admitted immediately. But that doesn’t mean they’ll do it. That’s where the government steps in. Carrns explains how:

“Legislation pending in Congress is aimed at fixing the problem…by making any three-night stay — regardless of status — qualify to meet Medicare’s rules governing eligibility for subsequent nursing home care.”

While there’s no timeframe on if or when these changes will take place, it’s important to note that your best chance of avoiding outpatient costs is to request that you be admitted as soon as possible. Once you’re out of the hospital and paying the bill, it can be difficult to dispute the bill. However, if you’re already at that point, then take a look at this self-help packet by Medicare for help.

Ultimately, it’s up to each and every one of us to take our health and our finances in our own hands. How can we do that? Write to our legislators, prepare an emergency fund for your possible future medical costs, and do as much research as possible so we know how to fight for our rights before, during, and after receiving medical care.

Image credit: kuzma

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