The twin problems of medical debt and underinsurance
Medical debt is the one of the leading causes of bankruptcy in the United States, and is an growing problem for the middle class and those with health insurance.
3 out of 4 families with medical debt had insurance at the time they got sick.
An estimated 25 million Americans are "underinsured," a 60 percent increase since 2003.
Middle-income families experienced the largest growth in underinsurance, with the number of underinsured nearly tripling from 2003 to 2007.
Causes of medical debt include:
- "Junk" insurance. Some insurance plans are marketed as offering financial protection in case of "catastrophic" illness, but have large gaps in coverage that leave consumers paying, in effect, to be uninsured. For example, many so-called "catastrophic" plans offer "hospital-only" coverage, even though the majority of surgeries and chemotherapy treatments are now done in outpatient settings. A consumer with such a plan who gets diagnosed with cancer or another serious illness could find herself needing tens of thousands of dollars worth of care, for which she will be completely uninsured. Other forms of junk insurance include plans that do not cover any hospital care, or that cover only a tiny fraction of the cost of hospital care, which can easily run over $1,000 per day.
- Insurance plans with no out-of-pocket maximum. Some plans marketed as "catastrophic" set no maximum limit on how much money a consumer may be liable for. People with such plans who experience a major illness, injury, or chronic condition can reach their coverage limit quickly and then be liable for hundreds of thousands of dollars in additional costs, which can eventually lead to bankruptcy.
- Confusion about the different plans in the individual insurance market. Trying to buy insurance on your own is a difficult task. Because different plans have different deductibles, copayments, covered benefits, and annual or lifetime maximums, it is nearly impossible for a consumer to compare "apples to apples" in order to identify the best plan for them. As a result, too many consumers pay for plans that do not offer the coverage they need. With the ongoing economic downturn and the erosion of employer-sponsored coverage in California, more families are turning to the individual market for coverage. For small business owners and the self-employed, the individual market is often the only option available, yet it can leave people unwittingly underinsured.
- Misleading sales practices. To help understand their insurance choices, some consumers and many smaller businesses consult with an insurance agent or broker. Agents are paid by insurance companies on a commission basis but have no obligation to disclose their commission amounts to their customers. Insurance agents thus have a financial incentive to sell coverage, even if that coverage may not be the best financial product for the consumer.
Overcharging for emergency room visits. Uninsured and underinsured patients who go to an emergency room are often charged many times what an insurer or government program actually pays. Without bargaining power, these "self-pay" patients receive inflated bills from the hospital and from attending physicians. In 2007 California implemented a law that prohibits hospitals from charging uninsured and underinsured patients more than what Medicare or other public programs would pay for the same service. Hospitals are just starting to implement the law, and it is still common for emergency room doctors to charge uninsured patients three to ten times what Medicare and other insurers will pay for exactly the same service.