Medical Problems Leading to Bankruptcy: Little Has Changed with ACA
ACA has had little effect on the financial burden of households with chronic health conditions. The rise in treatment costs and associated cost sharing for individuals and families are causing medical debt that often has caused these families to deplete their savings. It often also causes these families to forgo necessities like food, heat or rent in order to pay their medical bills. In these cases, the families are forced to file for bankruptcy in order to have a roof over their heads.
Nearly 2/3 of bankruptcy in the US is medical in origin. There is a presupposition of cure-at-all-costs resulting in many a thorny discussion about the ethics of rationing health care. And although financial risk falls on all patients it is more frequent among the poor and patients with life-threatening conditions. In the US 62% of bankruptcy is said to be medical even though 75% of those patients were insured at the time of the catastrophic illness. It is this fact that leads many patients to forgo care because of high costs. Policy intervention would be better served from the understanding of how patients make the trade-off between financial ruin and healthcare (Shime et al, 2018).
Misunderstandings of Health Insurance
Health insurance confers benefits to the previously uninsured including improvements in health, reduction in out-of-pocket spending, and reduced medical debt. But because the nominally uninsured pay only a small share of their medical expenses, health insurance also provides substantial transfers to non-recipient parties who would otherwise bear the costs of providing uncompensated care to the uninsured. The US government heavily subsidized health insurance and that was the single largest federal tax expenditure ($250 billion) and Medicare ($550 billion) was the second-largest line item. Since ACA enacted, spending on Medicaid dwarfs the size of the next-largest means-tested programs, food stamps (SNAP). In 1965 President Johnson declared that Medicare was to allow older Americans to access modern medical advances. No longer would illness crush and destroy the savings that the older Americans had so carefully put away over their lifetime.
When obama signed ACA into law he echoed those same sentiments but in truth, it has only led to fewer people being covered. During the Great Depression, the Blue Cross hospital insurance plans were created to help hospitals provide care. Today hospitals have proved to be an important lobbying force for expansion of Medicaid. There is growing evidence, however, that a substantial expenditure for this expansion falls on the health care providers.
This is because the uninsured pay only a fraction of their health care costs, like 1/5 to 1/3 of their medical expenditures. Evidence of the impact of health insurance on out of pocket spending gives a very incomplete picture of the effect these costs affect households. The Consumer Financial Protection Bureau (CFPB) found that unpaid medical bills constitute more than half of all collection lines on consumer credit reports. More work is needed to estimate the health impacts of health insurance from reductions in medical debt. In addition, low-income adults’ willingness to pay for publically subsidized insurance is substantially below the costs to insurers of providing this coverage.
This has been shown as the low willingness to pay for formal insurance relative to cost. Subsidies are not the answer but are politically charged. More often than not, those who truly need help are not the ones receiving them (Finkelstein et al, 2018). When Washington, DC was making the push for ACA, it was often reported that millions of Americans were just one accident or illness away from bankruptcy. It was also stated that the high cost of health care was causing bankruptcy every 30 seconds in America.
These reports and others were used as a major argument in support of ACA-all hype. In 2014 Democratic Senator Elizabeth Warren cited medical bills as the leading cause of bankruptcy when she introduced the Medical Bankruptcy Fairness Act-more hype. Then this study took a closer look at the evidence and found it suffered from a basic statistical fallacy and once removed it was discovered many fewer bankruptcies were filed than had been claimed. Two high profile articles claimed 60% of all bankruptcies filed in the US were due to medical events.
Truth is as reported by CFPB only 20% of Americans have substantial medical debt and only 1% of them file bankruptcy due to medical bills. Clearly, while many people face medical debt they don’t go bankrupt. And even after correcting for the overly broad definitions of medical expenses, the existing widely cited evidence is built on the fallacy that when two things occur together there is necessarily a causal relationship between them. Overemphasizing medical bankruptcies will distract from understanding the true nature of economic hardship coming from high-cost health problems (Dobkin et al, 2018b).
Alternatives to private insurance
Medicare offers substantial protection from medical expenditure risk. At age 65 out of pocket, expenditures drop by 33% to 53%. Nonetheless, the gain from reducing out of pocket expenditures accounts for only 18% of the social costs of financing Medicare. However, the calculation doesn’t even touch on the cost of prescriptions this group must pay. In addition, many physician groups accepting patients with private insurance is preferred over Medicare-covered patients. This can lead to difficulty in accessing health care by those who are covered by Medicare. Most people when they reach 65 apply for Medicare and this insurance plays an important role in protecting against expenditure risk. Out of pocket spending at age 65 drops 20% but doesn’t include pharmacy numbers. And this increases 18% in welfare that can easily be offset by an increase in medicines needed to keep them well.
Also, many studies don’t take into account the additional cost of Medicare Part D as a way to help with medications, as this is an out of pocket cost for those who purchase it. The ACA should help expenditure risk but its success is limited in many states due to a decrease in uninsured to be enrolled. It remains to be seen just what affect ACA will have on those 65-66-year-olds that are not eligible for Medicaid or are able to afford private options. These are the Americans who are destined to have to choose; food or healthcare (Barellos & Jacobson, 2016). For this study, the group used a survey from the Health and Retirement Study and hospitalized data linked to credit reports. For non-elderly patients with health insurance, hospital admissions increased out of pocket medical spending, unpaid medical bills and bankruptcy and reduced earning and access to credit and consumer borrowing was observed. Earning decline is substantial compared the out of pocket spending increased and is minimally insured prior to age-eligibility for Social Security Retirement income.
When President Johnson signed into law Medicare he said it was so that illness would no longer crush and destroy the savings of older Americans that they have saved over a lifetime. The impact of hospital admissions on out of pocket spending and earnings is apparent.
This has increased over a three year period later at approximately $1429. A hospitalization also reduces the probability of being employed by 8.9% in the first year after admission; up to 20% decline in earnings when compared to pre-admission numbers. The effect on collections is another very clear outcome of the study. Four years after hospital admission there was an increase in total collection balances of $302 or about 25% relative to pre-admission balances. Hospital admissions are also associated with a decline in access to credit. A decrease in credit limits is more consequential than a decline in credit score and on an increase in interest rate.
Those who are filing medical cause bankruptcy are 17% to 62% and these findings have attracted a great deal of attention from journalists, politicians, and policymakers. The findings of this study suggest that non-elderly insured adults with health insurance still face considerable exposure to adverse economic consequences of hospital admission because of the impact on labor earnings. In addition, it has been found that medical bills only account for less than 5% of bankruptcies. They also found that the uninsured face similar economic risks despite their lack of formal insurance. The study felt this was most likely from their inability to pay large portions of their medical costs.
These findings fly in the face of the rhetoric existing articles have us believe (Dobkin et al, 2018a).
Is ACA really helping with costs?
Adhering to screening guidelines can be difficult for lower-income and under-insured individuals. Colorectal cancer (CRC) is a prime example. This screening allows for the identification and removal of precancerous polyps and has helped to decrease incidents of cancer. Only 67% of insured adults have been screened for CRC compared to 35% of uninsured adults. The research was done to understand this have found the cost of screening, inadequate insurance coverage, and reimbursement, lack of recommendation by providers, medical distrust, fear, embarrassment, and fatalistic attitudes have all been reported. Scaling back of public programs and aid to the poor and shifting of economic and social responsibility away from the state and onto the individuals and families are listed as possible causes. In the 1990s the welfare reform act was signed to effect those changes.
This means much of the labor for healthcare has shifted away from healthcare providers and institutions and onto the individual who is expected to purchase health insurance engages in healthy lifestyle changes and seeks out care.
The most common choice for screening CRC is a colonoscopy. It is unique as it is expensive, time-consuming, and invasive. It requires fasting, special preparation to clean out the colon and done by a specialist under sedation. On the plus side, it is only recommended every 10 years unless polyps are found or there is a family history. Many participants in the study stated the cost of colonoscopy was difficult to afford without insurance. One participant still has trouble finding insurance since losing her husband’s coverage after a divorce. In addition, the vagary of the total bill concerns many as there is no way to know the total bill up front (Hunleth et al, 2017).
The rise of health-care costs in the US has become an increasingly important contributor to household financial risk and in some cases responsible for large outstanding debt and bankruptcy. A recent poll by The New York Times found 46% of households’ basic medical care is a hardship. As a result, many either don’t adhere to prescribed treatment or don’t seek medical attention at all. This could lead to even further problems as preventative care could not be given and resulting in more expensive emergency room visits as their health deteriorates. And while Medicare can offset the negative effects of poor health on households there is a risk of non-coverage or not being able to find a doctor or facility that accepts Medicare as primary payment.
This study felt that Medicare coverage implies larger and more widespread reductions in medical expenditure but changes in supplemental insurance for Medicare cancels out this advantage. In addition, the introduction of Medicare Part D that covers prescriptions only exerts a modest fraction of reduction. Medicare A & B are paid for from the recipients Social Security so while many feel it is a handout, those who receive these payments paid into the system so long as they have worked at least 40 quarters in covered employment, or have a spouse that did. For American adults, prescription drug costs represent a large share of medical expenses and these costs tend to be higher for seniors (Angrisani, Atella & Brunetti, 2018).
Researchers have found that ACA has done little to reduce the proportion of bankruptcies driven by medical debt. In a study from the Consumer Bankruptcy Project, they surveyed 910 Americans who had filed personal bankruptcy. It was found 58.5% were filed due to illness or medical bills. Out of pocket costs have not gotten better but even higher medical debt than before ACA was passed. In addition, pre-existing conditions ended up with higher premiums with ACA. With all the political hype of passing ACA, just who is it helping (Richard, Walker, & Alexandre, 2018)?
Angrisani, M., Atella, V. & Brunetti, M. (20180. Public health insurance and household portfolio choices: Unraveling financial “Side effects” of Medicare. Journal of Banking & Finances.
Barcellos, S.H. & Jacobson, M. (2016). The effects of Medicare on medical expenditure risk and financial strain. American Economic Journal: Economic Policy,7(4).
Dobkin, C. et al. (2018a) the economic consequences of hospital admissions. American Economic Review, 102(2).
Dobkin C. et al. (2018b). Myth and measurement: The case of medical bankruptcies. New England Journal of Medicine, 378(12).
Finkelstein, A. et al. (2018). What does formal health insurance do and for whom? Annual Review of Economics.
Hunleth, J.M. et al. (2017). Beyond adherence: Healthcare disparities and the struggle to get screened for colon cancer. Qualitative Health Research,26(1).
Richard,P., Walker, R. & Alexandre, P. (2018). The burden of out of pocket costs and medical debt faced by households with chronic health conditions in the United States. PLoS ONE, 13(6).
Shrime, M.G. et al. (2018) trading bankruptcy for health: A discrete choice experiment. Value in Health,21(1).