Savanah McDaniel, Policy Fellow
Medical debt is the number one cause of bankruptcy in the United States. After recent local media coverage and the sheer frequency of medical debt issues, Coloradans may not find this surprising. According to a 9News investigation, eight hospitals in the Denver area have placed liens on people’s houses to collect medical debt. Earlier this year, CCHI did our own research on medical debt collections in order to shed some light on how it might be affecting Coloradans.
Medical debt is often a result of urgent or emergency medical services that health insurance will not cover- either because a patient does not have insurance, or because the doctor or hospital was out-of-network. It is easy to understand that without insurance, or with a high deductible plan, an unplanned illness can easily become a huge expense. However, when a patient does have comprehensive insurance, and they go to an in-network health care facility, they may still be treated by an out-of-network provider (such as an anesthesiologist, surgeon, or radiologist) without their knowledge. In this situation, patients can receive an expensive, out-of-network bill, also known as a balance bill.
All these factors make it difficult for consumers to know what they owe, for what service, to whom, and when it’s due.
Regardless of how the medical bills transpire, or if the consumer is even aware of the charge, if left unpaid, the bills may ultimately be sent to collections agencies. This medical collections activity eventually hits consumers’ credit ratings, and depending on state laws, can appear on their credit reports for as long as seven years. According to a 2016 Commonwealth Fund analysis, 40% of adults age 19 to 64 reported having a lower credit score because of medical debt. These credit hits can make it extremely difficult for consumers to take out student loans, purchase a car, or finance a mortgage.
A report from 2016 shows that of the $729 billion owed in overall debt that year, collection agencies received almost 10%, proving collections to be part of a multibillion-dollar industry. In the same year, nearly half of the debts collected were health care related. The most recent federal data (2014) found that almost 20% of credit reports had at least one medical collection account listed. The same report also found that most medical collections were for small amounts, with an average unpaid medical collection of about $580. Additionally, the analysis found that 52% of consumers who only had collection debt related to medical claims, had an otherwise clean credit report.
What We Found:
With this information in mind, CCHI did some digging into medical debt collection practices in Colorado. We looked at Denver County court records for 99 medical debt collection cases during the 2015 to 2017 period. Of those 99 cases, almost 64% of the amounts owed were for less than $1,000 – half of those for amounts under $600. For many, what they ultimately owed ended up being much higher than their initial debt because of added attorney fees, court fees, and interest.
After medical debt claims enter the court, consumers’ financial obligations are decided by a judge. In the cases we looked at, about 40% of the defendants were issued a writ of garnishment. A writ of garnishment is a court order that allows a third party to take the defendant’s property to pay off their debt. This usually means wages are taken from someone who owes debt and given directly to the collections agency. Of those issued a writ of garnishment, 38% of the amounts owed were for less than $600. We also found that in two of the 99 cases, the defendant ended up filing for bankruptcy.
Based on our review of the records, as well as conversations with court personnel, there are several common ways a person ends up with medical debt in collections: in many cases, the insurance company had not paid the provider yet (unfortunately, even when the case is resolved in favor of the individual, it is still possible that a history of collections debt could affect their credit report). In others, consumers were held responsible for the debt because their medical services were not covered by their plan.
While we don’t know the details of the defendants’ health coverage, we did find a connection between certain specialists and debt collection. In 11 of the cases we reviewed, anesthesiologists were the original creditors, and in 17 cases radiologists were the original creditors. These specialities commonly appear in balance billing situations- as patients are often unknowingly treated by out-of-network radiologists, anesthesiologists, and surgical assistants.
Collections agencies that were common in the cases we looked at were Budget Control Services, Inc., Professional Finance Company, Inc., and Wakefield and Associates, Inc. The most common medical billing agency was Beacon Medical Services (now Reventics). Charges from Beacon Medical Services made up 20% of the cases we looked into. According to its website, Beacon Medical provides billing, coding, and practice management services to emergency physician groups and other specialty physicians.
How Does this Affect consumers?
According to the 2017 Colorado Health Access Survey, of the 14% of Coloradans who reported having problems paying medical bills:
46.2% took on credit card debt;
37.2% were unable to pay for necessities like food, heat, or rent;
15.7% took out a loan; and
5.4% declared bankruptcy.
Readers might be surprised to know that people with insurance (21.6%) reported having a hard time paying medical bills more than people without insurance (13.5%).
The main takeaway from our research on medical debt is not profoundly new – consumers are experiencing medical debt with or without insurance. What is surprising is that the amount owed in these court cases is lower than we expected (typically below $1,000). Even though this amount is lower than we expected, medical debt collection significantly affects a person’s financial stability. As shown above, 14% of Coloradans- approximately 780,000 people- faced challenges paying their medical bills. Many of those people were forced to take on more loans, or were too financially constrained to pay for necessities. This is also because people disproportionately burdened by medical expenses, like young adults and seniors, are already financially constrained by other sources of debt.
The financial strain caused by medical debt can push people into payday loans, either to pay off the original debt or to pay for necessities such as food and rent. Payday lending can deepen the cycle of debt for someone through high interest rates and fees. On average, payday lenders charge 129% in interest. A ballot measure recently passed in Colorado to limit interest and fees on payday loans to 36%. However, this measure is not yet in effect, meaning people who take out payday loans now could still be subject to astronomically high interest rates.
There are organizations that can help individuals manage and understand their medical debt. For example, Mpowered is a Colorado-based, non-profit organization that offers financial coaching and personal finance classes, as well as a low-cost debt management service. If a debt collector does file a complaint against an individual, there are legal resources in Denver that specialize in consumer protection. There are also national organizations that focus on medical debt forgiveness, such as RIP Medical Debt, a non-profit that raises money to buy and forgive medical collections debt.