Health care costs are rising, but so are out-of-pocket health care costs for consumers. And for many, that means a new crop of medical debt and the debt collectors that follow.
The annual health care costs for a typical family of four covered under an employer-sponsored preferred provider organization (PPO) plan is now at more than $23,000, according to the 2014 Milliman Medical Index. Since the beginning of the recession, the average cost to employers increased by 52% (an average of 6% per year) while health care costs borne by workers’ families grew by 73% (average of 8% per year), according to the Centers for Medicare and Medicaid Services. It also found that families spent $3,787 in out-of-pocket costs – deductibles, co-payments or co-insurance – when they actually accessed needed care. In total, it is estimated that Americans will spend $324 billion in out-of-pockets costs in 2014.
For many providers, the fees owed by patients are the most difficult to collect. While systems may be in place for providers to collect from Medicare, Medicaid and large private insurers, the systems may not be as efficient when it comes to collecting directly from patients. Meanwhile, patients may find the communication from providers to be confusing, leaving them uncertain of whether they – or the insurance company – are supposed to pay the bill.
As a result, providers commonly call on collection agencies for help in collecting patient fees. Once collection agencies are involved, however, they typically report the medical debt to the credit bureaus, which generally means trouble for patients — trouble that can be costly.
According to Richard Cordray, Director of the Consumer Financial Protection Bureau, “Sometimes they (consumers) do not know what they owe because of how complicated the billing process can be. Other times they may not even know they owe anything, thinking that their insurance will cover the bill. Sometimes the debt is caused by billing issues with medical providers or insurers. Complaints to the Bureau indicate that many consumers do not even know they have a medical debt in collections until they get a call from a debt collector or they discover the debt on their credit report.”
Additionally, the Consumer Financial Protection Bureau recently issued a report that found many credit scoring models may understate the creditworthiness of consumers who have medical debt in collections by about 10 points, and for those who have repaid medical collections in full by 16 to 22 points.
The health care and debt collection industries are working on addressing this problem.