How hospitals can help solve our medical debt crisis

Medical debt has reached epic proportions, impacting the financial security of more than 100 million Americans. According to the Consumer Financial Protection Bureau, about 111 million credit lines included medical debt in 2021, with a total debt balance of $88 billion nationwide.

Now a new report from the Los Angeles County Department of Public Health (DPH) shows how bad the problem has become in one major city, and offers solutions for hospitals and policymakers to consider.

The burden of medical debt in LA

The LA DPH used county-specific data from the California Health Interview Survey (CHIS) of 4,000+ people from 2017-2021 to better understand the burden of medical debt. They found that about one in ten LA County adults reported having trouble paying medical bills in the past year. That’s higher than the rate of asthma or smoking in the county and close to the rate of type 2 diabetes in the area.

Even as the proportion of insured adults increased from 2017 to 2021, the level of burdensome medical debt in the county did not significantly change, according to the report. The impact of medical debt on LA residents’ financial security was profound. Half of adults with medical debt burden reported taking on credit card debt to pay for their medical bills, and 46% reported being unable to pay for basic necessities due to their medical bills.

While medical debt is widespread, certain LA county residents are disproportionately impacted by medical debt. Here were some of the factors associated with greater rates of medical debt burden in LA County:

• Insurance status: Uninsured patients had high rates of burdensome medical debt (26.3%). But even those insured under MediCAL (California’s Medicaid program) and private insurance were twice as likely to have medical debt burden compared to those covered under Medicare.
• Race/ethnicity: Latino (12.4%), Black (11.0%), and American Indian/Alaskan Native, Native Hawaiian/ Pacific Islander, or multiracial adults (12.7%) were more likely to have medical debt burden compared to white (7.9%) and Asian (5.8%) adults.
• Income: Those with household income under 300% of the Federal Poverty Level ($79,500 for a family of four) were more likely to be burdened by medical debt compared to those making above 300% FPL.
• Health status: Respondents in “poor” health were more than three times as likely to have medical debt burden compared to those in “excellent” health.

Hospitals and medical debt

The high cost of hospital care — especially for uninsured patients or those with high-deductible plans — is one of the big drivers of medical debt. According to a 2023 Urban Institute report, nearly 75% of adults with medical debt owe some or all of it to hospitals. In LA County, adults with one or more hospital stays in the past 12 months were more than twice as likely to have medical debt as those with no hospital stays (21.5% vs 9.2%).

At the same time, hospitals are well-positioned to help solve this problem, as growing profits have given some hospitals a financial buffer to invest more in free and discounted care for patients that need it. However, increased profits do not always result in increased financial assistance. A recent study in Health Affairs found that from 2012-2019, the average operating income for nonprofit hospitals increased from $43 million to about $59 million, a 37% increase. Yet over that time period, spending on financial assistance for nonprofit hospitals actually decreased slightly.

The decrease in financial assistance spending during that time could partly be attributed to Medicaid expansion, which reduced the number of uninsured patients who are usually the target of assistance. Yet it doesn’t explain why average financial assistance spending at for-profit hospitals nearly doubled over the same time period, as the Health Affairs piece found.

The Lown Institute’s Fair Share Spending report earlier this year found a similar disconnect between nonprofit hospitals’ enormous tax benefits and the amount spent on their communities.

What can hospitals do?

So what should hospitals do about this? The LA DPH convened a coalition of community organizations, hospital representatives, and local government to discuss solutions to help reduce the burden of medical debt. Here are a few policies for hospitals that were discussed:

1. Expand financial assistance to more patients. In the LA study, adults in households with incomes below 300% or more of the FPL had a greater likelihood of medical debt burden than those with higher incomes. Currently, California law requires that hospitals have to provide free or discounted care for uninsured patients who earn up to 400% of the federal poverty level, but the same rule does not apply to all insured patients — nor do care discounts always cover the full cost of care.
2. Use presumptive eligibility. This means that hospitals automatically qualify patients for financial assistance if they are eligible for Medicaid, SNAP or other means-tested benefits. This takes away a lot of the administrative burden on patients to apply for assistance.
3. Make financial assistance applications simpler and less invasive. For example, don’t require details on patients’ assets, pay stubs, tax returns, or other personal information that people are reluctant to share.
4. Have financial counselors or patient advocates available to help patients navigate the billing process and identify when people are eligible for assistance.

The coalition also identified several important actions for local government, such as:

1. Pass legislation requiring hospitals to broaden eligibility for financial assistance and stop aggressive billing practices like selling medical debt to collection agencies. Los Angeles could also follow in the footsteps of New York City and create an Office of Healthcare Accountability to be able to gather more data on hospital pricing, community benefit spending, and billing practices.
2. Increase transparency for financial assistance and billing practices. While we don’t always get to choose our hospital, it can help to know which hospitals have the most generous and simple financial assistance policies before seeking care. Perhaps more importantly, we need to know which hospitals allow them to sue patients with past-due bills, garnish wages, refuse care, or have other aggressive billing practices.
3. Buy and forgive medical debt. Dozens of communities including Boston, Chicago, and New Orleans have used COVID relief funds to forgive medical debt for thousands of people.

Whether it’s policymakers or hospitals making the first move, action is urgently needed, because the medical debt crisis is only growing.