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A Full Scale Attack on Medical Debt

Yves here. Even if you don’t agree with Bob Hertz’s prescription for medical debt, his typology of various types of debtors and the political and practical problems they pose provides a good foundation for further analysis. By Bob Hertz, a health care essayist The recent proposal by Sen. Bernie Sanders to cancel billion of medical debt is a very good start – but it is only a start. The RIP Medical Debt group–which buys  old medical debts  ,and then forgives them– is absolutely in the right spirit. Its founders Craig Antico  and Jerry Ashton  deserve great credit for keeping the issue of forgiveness alive. Unfortunately, over billion in new medical debt is created each year – most of it still held by providers, or sold to collectors, or embedded in credit card balances. Tragically,

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Yves here. Even if you don’t agree with Bob Hertz’s prescription for medical debt, his typology of various types of debtors and the political and practical problems they pose provides a good foundation for further analysis.

By Bob Hertz, a health care essayist

The recent proposal by Sen. Bernie Sanders to cancel $81 billion of medical debt is a very good start – but it is only a start.

The RIP Medical Debt group–which buys  old medical debts  ,and then forgives them– is absolutely in the right spirit. Its founders Craig Antico  and Jerry Ashton  deserve great credit for keeping the issue of forgiveness alive.

Unfortunately, over $88 billion in new medical debt is created each year – most of it still held by providers, or sold to collectors, or embedded in credit card balances.

Tragically,  none of this has to happen! In France, a visit to the doctor typically costs the equivalent of $1.12 .  A night in a German hospital costs a patient roughly $11. German co-pays for the year in-total cannot exceed 2% of income, Even in Switzerland, the average deductible is $300.

U.S. patients face  cost-sharing that would never be tolerated in Germany, says Dr. Markus Frick, a senior official . “If any German politician proposed high deductibles, he or she would be run out of town.”

In Australia, a recent proposal to establish the equivalent of a $5 co-pay for primary care visits fueled such an outcry that the federal government was forced to withdraw the idea.

Americans may be forced to take second jobs just to pay medical debt; meanwhile,  the highly-taxed Europeans get free medical care and are counting their weeks of paid vacation. What is wrong with this picture?

These nations have shown that cost sharing is not necessary to keep health care spending at a level well below that of the United States. They rely on higher taxes and price controls…..and yet, are those really worse than widespread patient debt?

  1. US Medical debt comes primarily from these sources:
  • the uninsured
  • high deductibles
  • out-of-network bills
  • claim denials
  • specialty drugs
  • emergency room care
  • ‘zombie debts’ purchased by collectors

In this essay, we will show that a substantial number of these debts can be cancelled or greatly reduced.

Today, these  groups run up the most medical debts:

Group No. 1. The poor and the uninsured,  including those who still do not get Medicaid in  red states.

A Tennessee couple earning $13,000 annually gets no help whatsoever on medical bills. They can barely afford food or rent; so of course they incur medical debt every time they are sick.

Over 20% of these families do not have a checking or savings account.  Over 30% are not working at all.  If they do work, they  cannot afford to join the employer’s plan.

Six full years after the ACA, there are still close to 30 million adults in the US who are uninsured. About seven million are undocumented immigrants. Another seven million are actually eligible for Medicaid, if they do get sick.

About four million could benefit from the ACA, but are unaware of the benefits. Up to five million are kept out of both Medicaid and the ACA in the red states described above. Another two to three million make too much for ACA subsidies.

This is a hard group to help. No states besides California want the undocumented to get help. No cities outside liberal enclaves like Seattle and New York care about health insurance for restaurant and service workers.

The poor rarely vote, so ignoring them does not trouble conservatives.  Politics are often dominated by seniors -who will approve a conservative message about ‘getting rid of socialized medicine’, while they themselves enjoy the federal socialism of Medicare.

(Not to mention Social Security, electricity, phone infrastructure, and the defense spending that comes to  red state residents from the federal government.)

Group No. 2.  The under-insured , who have high deductible insurance and no savings;

Why are they walking around with deductibles they cannot afford?

At some employers, this is the only health insurance which is offered.

Even where there is a choice of plans, people with smaller incomes often select the cheaper high-deductible coverage.

If you are healthy,  a high deductible plan to save money on insurance premiums may be a decent gamble at first.. But if you have a chronic illness, you will pay the entire deductible each year, and  will probably build up debt. Only a minority of employers offer  assistance to pay the deductibles.

Sometimes  this group pays $500 a month or more for a porous health plan, which  then leaves them with thousands in debt if they are hospitalized.

Many families are living right on the edge financially, and they have trouble with all their debts, not just medical. Default rates are growing on car loans and credit cards as well. They often face utility shutoffs and repossessions.

A recent study of insurance claims showed that 49% of patient out-of-pocket costs per healthcare incident were below $500; 39% were $501-$1,000; and 12% were more than $1,000. That  generates an enormous amount of medical debt.

Group No. 3. The well-insured, who may still get huge out-of-network bills.

Some of their debts are out-and-out fraud. If a hospital says they are in-network, then all their contractors should be in-network – or else we have an illegal bait-and-switch. These surprise bills should be cancelled (details to follow).

  • In 2011, (9 years ago) New York studied more than 2,000 complaints involving surprise medical bills, and found the average out-of-network emergency bill was $7,006. Insurers paid an average of $3,228 leaving consumers, on average, “to pay $3,778 for an emergency in which they had no choice.”
  • Out-of-network assistant surgeons, who often were called in without the patient’s knowledge, on average billed $13,914, while insurers paid $1,794 on average.  Surprise bills by out-of-network radiologists averaged $5,406, of which insurers paid $2,497 on average.

Medical debt can be cruel and dispiriting – and It is also incredibly inefficient! The cost of creating a bill, sending a bill, following up, negotiating a settlement, paperwork for charity care,  financial counseling, a possible lawsuit, and (rarely) getting repayments over years– the sheer administrative expense is enormous.

The average recovery on hospital bills sent to individuals is 15.3%.   Non-hospital providers recover an average of 21.8% of each bill. No wonder some providers prefer Medicaid – it only pays about 50% or less of their normal charges, but that is far more than they will get in actual collections.

There are  two overarching models for financing health care ;

One is the Bernie Sanders model:

  • Paternalistic– you get insurance whether you choose it or not
  • Sympathy for the poor, minorities, and migrants (you never know when you might be among them)
  • Collectively bargained – usually with large payroll taxes
  • No pre-existing conditions clauses
  • Hospitals are financed mainly by taxes, not user fees
  • Patients are not in debt (though governments often are)
  • Cost control through price controls and rationing

The Sanders model accepts the use of coercion to pay for health care. (For that matter, the Singapore health model that is praised by conservatives is filled with coercion, including public hospitals, forced savings for HSA’s and taxes forcatastrophic insurance.) At some point we are all going to get sick, so letting us decide when to buy insurance is somewhat of a fool’s paradise. Millions will always make bad choices and be left to suffer; we need to be protected against our own stupidity.  Coercion is needed –the only real issue is when and where. Even wealthy societies can benefit from forced savings.– for example, a mandatory HSA deposit of 3% of income would eliminate most of the  medical debts discussed in this essay.

The other is the Paul Ryan-Newt Gingrich model:

  • Based on Individual choice
  • No mandates on employers to provide quality coverage
  • No mandates on individuals to buy quality coverage; if they want to gamble going uninsured in order to save money, that is their call.
  • Hospitals financed by user fees, insurance premiums and private savings
  • No interference with anyone making money on health care -even those who prey on medical debtors
  • Medical bankruptcy is OK, because the fear of it motivates the purchase of health insurance.
  • Cost control (theoretically) through competition – faith in free markets
  • Taxes on workers are lower – although the savings seem to be siphoned off in premiums, co-pays, and deductibles.

The Ryan model is frankly Darwinian when you get close to it. The uninsured, frankly, are usually  people who make mistakes – like poor budgeting, failing in school, losing their jobs, or being born to non-rich parents. Persons with no money get much less care, and will die sooner. Those who do not buy insurance when they are healthy will suffer later on. Eventually it all starts to sounds like “culling the herd.”

The Ryan model therefore expects a lot from private charity. (Begging is preferable to new taxes.) Democratic legislators  have also established Medicare, Medicaid, and SCHIP to smooth out the  inevitable rough edges.

Medical debt is an obvious consequence of the libertarian model. It can only be reformed  by importing controls and rules from the Sanders model.

The ideal image of high-deductible insurance features a judicious patient with at least $10,000 in HSA savings, getting bids on each procedure and therefore driving down costs. They might even have non-urgent care done abroad, which would force American hospitals to compete on price. They might decline an unnecessary treatment or diagnostic test, to save money.

Even  If hospitalized , they can say to the provider, “I am paying cash, what is your best offer?” The Amish – who do not buy insurance, but save prodigiously – actually use this method.

This has some basis in fact. Cash for medicine.

However, millions of Americans have no cash,  and no bargaining skills.  Some diseases may not wait for patient ‘shopping.’ A desperate patient goes to the nearest hospital  and then juggles utility bills and high-interest charge cards to pay down medical bills,  and then begs for help from relatives or (even sadder) from GoFundMe.

The average holder of an HSA account is under age 45, healthy, and with an average income of $75,000. Whereas In  low-wage America, a ‘consumer-driven’ health plan is a ‘consumer-indebted’ reality.

Financial casualties among patients do not seem to lead to lower health care prices. Providers are just as likely to raise their prices,  in order to cover the bad debt they are taking on. (Drug companies certainly do not lower their prices when their customers suffer.)

Doctors may want to forgive some patient debts, but there is a limit how often they can do this and still cover the expenses of their practice. In some cases,   it is actually (and idiotically) illegal for physicians to waIve  the deductibles.

Therefore I advocate the following  attacks on medical debt:

                                             Phase One

 We must cancel balance bills and surprise bills  if there was no prior disclosure.

In most cases, providers will not have the right to collect anything more than what the  insurers pay them.

                                             Phase Two

We must cancel the older,  inactive “zombie debts “ that are being purchased by collection agencies.

This line of business must terminate.  Providers throughout the country are selling uncollected medical debt for pennies on the dollarto collection agencies, who aggressively attempt to force patients to pay the full amount due. These debt collectors harass patients at work and at home, deploying unscrupulous tactics even after the statute of limitations on the debt has expired.

Debt collection lawyers can file hundreds of suits a day, often with little evidence that the alleged debt is actually owed. Once a lawsuit is filed, the process is stacked against defendants, the overwhelming majority of whom are not represented by an attorney. And collectors have a big advantage in small claims courts, which provide very limited due process protections to debtors.

The Debt Buyer Industry has a bad reputation and for good reason. They are typically far more aggressive than the original creditors or their hired debt collectors. There is nothing redeemable about the junk debt buying business.

Per Senator Sanders: “Forcing additional stress and hardship on someone for the ‘crime’ of getting sick is immoral, unconscionable, and un-American. We will eliminate past-due medical debt.”

Of course, all cancellations of unconscionable debt must be income-tax free.

                                             Phase Three

Debts can also be reduced, by expanding the Affordable Care Act:

– Subsidies should be tied to low-deductible gold plans

– Subsidies should be available at all income levels – not just stopping at 400% of poverty

–  We can let families join the ACA exchanges if their workplace

–  Plans do not cover spouses and children (i.e. solving the ‘family glitch’)

                                              Phase Four

We must create a subsidized, guarantee-issue “Cost Sharing Reduction Insurance” that would be available to any American – not just those who have low incomes and  a Silver plan under the ACA.

This policy would cost about $125 a month and it would pay your deductibles – similar to the Medicare Supplement plans that seniors can purchase. Rates can be kept stable by government reinsurance – again, just like Medicare. The cost of reinsurance might be $50 billion a year…..but we spend that much and more to lower the cost of Supplements and Drug Plans for seniors.

Low-deductible health plans have just become too expensive for many American businesses and consumers. Adding on a separate policy to pay deductibles is not a perfect solution, but it is a workable one.

Here are specific regulations to continue the assault on debt:


RULE #1   No balance bills or out-of-network charges will be valid without arm’s length prior disclosure.


If a procedure can be scheduled, it can be quoted. Every other industry  gives price quotes that are the basis of a valid contract – with fees and charges spelled out, and remedies if unavoidable extra costs appear.

A medical provider who does not offer a quote when requested will not be able to enforce payment.  No prior disclosure means no patient liability, for  scheduled procedures.  Of course this solves the surprise  bill problem:  if extra fees are not disclosed in advance, then the patient may not be billed extra.

Also–  If an insurance claim is denied, the patient is not liable.

The provider and the insurer can fight it out

For emergencies – when no contract is possible – providers can only charge an average of what they actually collect from all insurers. Networks are completely irrelevant.

I would call this “statutory protection.” You shouldn’t need to buy expensive insurance, just to be protected from price gouging.

These laws must be national and they must be enforced. Some hospitals will continue to send  balance bills even if they are illegal.  Therefore, we must

have a “Patient Financial Protection Bureau”with the power to nulllfy price-gouging. We need officials who  are willing to assess fines, harassment, audits, bad publicity and even federal  takeovers if needed.

(Price gouging happens much less to persons over age 65, incidentally. Medicare Advantage (MA) patients are not responsible for out-of-network charges in emergency care settings.  Federal law also limits how much providers can bill the patients in traditional Medicare, in most medical situations– although specialty drugs create their own bankruptcy issues. )

 RULE #2. Emergency care must not be subject to insurance deductibles.

Co-pays such as $250 for ER care would be acceptable, but nothing more.In other words, even if you have a plan deductible of $4000 or more, any emergency will be covered at 100%.

Otherwise we get awful scenes such as  occurred on the Boston subway.  A woman’s leg got stuck in the gap between the train and the platform. It was twisted and bloody. She was in agony and weeping, but she begged that no one call an ambulance. “It’s $3000,” she wailed. “I can’t afford that, I  have terrible insurance.”

 RULE #3. The uninsured will be charged Medicare rates for hospital care.

. All existing “chargemaster” bills must be cancelled, never to return.

The largest  bills are almost never collected anyways.  Wage garnishment generally doesn’t bring in very much for hospitals either.  In a recent study of Virginia hospitals, the average  total revenue from garnishment was 0.1% of the hospital’s annual cash flow.  The average “award” for hospitals that won lawsuits against patients was just $1,400.

Hospitals who serve the  poor and uninsured do have a legitimate problem, however.  Hospital bad debts are running over $50 billion per year.  Some hospitals do offer 70% discounts to the uninsured, and they still must deal with bad debt

The solution is not meaner collections–– it is more help from government. Medicare’s current aid to hospitals for patient bad debt are stingy and insufficient.    (I  would favor a small tax on the uninsured . The ACA mandate was not a bad idea, but the money that is raised should go toward hospital care.. A person who has money but stays uninsured will still receive emergency care, and a tax to pay for this is not out of place.)

RULE #5  Limits must be placed on debt collectors:

Some  non-profitand “public”hospitals­ aggressively sue low-income patients for medical bills .(At least until the media catches them doing it.)  They sue people who would actually be exempt under their own charitable guidelines. Some have evenfiled lawsuitsagainst their own employees to collect unpaid medical bills.

Charity care guidelines should be national, universal, and generous, with harsh punishments given to hospitals that ignore them.

 The National Consumer Loan Center   has made a good start in their  proposed Model Medical Debt Protection Act, which would ban the following:

(1) Any action causing an individual’s arrest;

(2) Causing an individual to be subject to a writ of body attachment [or similar term such as “capias”];

(3) Setting a lien, or ever foreclosing on an individual’s real property;

(4) Garnishing the wages or state income tax refund(s) of a patient who is eligible for financial assistance.

Lawsuits for medical debt must disappear. No more attorney fees would be allowed, and no interest charged either.

Under our new laws and regulations, here is a sample of what will happen to individual medical debtors 

#1  – The  debtor brought their child to the Emergency Room, and was billed $25,000.

Hospitals use a complex, confusing chargemaster-based billing system to get more money from insurers. The list price is set unreasonably high; then the insurers negotiate a discount up tp 80%. (Some insurers even bill for this ‘re-pricing’ – which is pure financial waste.)

In any event, when some hospitals see a chance to collect their invented “rack rates” from the uninsured, they go for it aggressively.

It is true that a stubborn patient can sometimes reduce their debt through negotiation….. but no one has to negotiate with the fire department.  Americans are used to posted prices, not haggling, and especially not haggling in medicine.

This bill for $25,000 should be denied at the state health agency. The hospital can collect on the Medicare fee schedule.

#2  – The patient had to use an out-of-network hospital due to complications after surgery, and was billed $50,000 extra.

This event could not have been scheduled in advance. The patient had no choice in the matter –

Therefore no extra fees are due. The out of network provider must accept the standard insurance  reimbursement as payment in full.

The  out-of-network providers – especially the ones owned by Wall Street – use a predatory price-gouging business model .The medical profession itself should have cracked down on them long ago.

#3 – The debtor  is being harassed by debt collectors over a $40,000 hospital bill from six years ago

There will be a firm statute of limitations on medical debt. After a fixed period of perhaps five years the debt must be legally cancelled, so it can never be sold  or re-sold to anyone. All interest and legal fees will also  be cancelled. Lawyers who enforce medical debts can find honest work instead.

#4 – The debtor put $100,000 on high-interest credit cards to pay for cancer drugs, and now cannot cover the charge card payments.

They will probably have to declare bankruptcy. The pricing practices of Big  Pharma unfortunately needs a more complex reform –and not a moment too soon. Very high drug costs are a major reason for the rising premiums (and resulting high deductibles ) in comprehensive health insurance.

However, bankruptcy only works well for one-time high medical expenses. If you have a chronic illness that will cost $1,000 a month for the rest of your life, bankruptcy is only a temporary reprieve.

#5  – The patient received a hospital bill for $50,000   –after their insurance company already paid the hospital $100,000

The hospital cannot bill extra,  if they did not allow the insured to approve the extra fee in an arm’s length quote and transaction. No extra payment need be made here.

.#7 – The patient had a battery of tests of investigate his dizziness, and now faces a hospital bill of $15,000.

These tests could have been performed in a much cheaper location. The hospital should only be allowed to recover what an outside clinic would charge. We can go much further toward  ‘site-neutral’ reimbursement., which hospitals violently resist.

#8- The patient had a successful surgery, but the insurance claim was denied due to coverage issues. The hospital is now pursuing them for $35,000.

If a claim is  denied, and the patient could not have known this was likely, the patient will not be liable. (This has been true in Medicare for decades.)

Right now, patients are often asked to pay disputed medical bills while insurers and providers attempt to resolve the dispute. If an individual does not pay the bill during this time, it can be turned over to collections. Before receiving medical care, most consumers sign consent forms agreeing that they are responsible for any medical bills their insurance company does not cover in full – this must end!

#8 – The patient needed  an ambulance after a stroke, and was billed $2800 for a 10 minute ride.

Ambulance service should be a government function, paid for by taxes, no different than fire or police. This applies to air-ambulances also.

The taxes required would be about $15 billion a year, which is a rounding error in federal health spending.

Ambulance fees must be capped at the standard Medicare amount of $450, perhaps with an increase of about 30%, all of which should be paid by government.

#9– The debtor  did not pay a $600 medical bill while they were unemployed. They were sued for the debt but did not make a court appearance. Next time they got a traffic ticket, they were put in jail until they paid the medical bill.

No lawsuits should ever occur on small medical debt, and no arrests either.

 #10 – The patient owes their dentist $2,500 for past treatments, and needs addition dental care that they cannot pay for at this time (or ever).

This is a major area of medical debt – at least 12% of overdue bills — but unfortunately we do not have a quick solution. The patient must look to the following safety nets:

Dental schools-Most of these teaching facilities have clinics that allow dental students to gain experience treating patients, while providing care at a reduced cost.

Dental hygiene schools may also offer supervised, low-cost preventive dental care as part of the training experience for dental hygienists.


The only way to fully eliminate medical debt would be a comprehensive single payer plan, which allowed no fees at the point of service.

However –  such a plan would require setting all  prices for all doctors, hospitals, labs, and drug companies. All providers would have to be satisfied – in advance – with what the government is going to pay them on each procedure.

Countries like Germany accomplish this through collective bargaining. Japan, France, Taiwan, Israel and Scandinavia also have national fee schedules. However,  I do not think you could get all the providers in Toledo to agree on one schedule, much less every provider group in America.

Single payer would also require new income and payroll taxes of at least   ten per cent more than we pay now, if we want first-dollar coverage.

Most single payer countries have a 10%-20% sales tax as well. The Europeans are not shy about taxing the middle class for health care.

Based on consumer surveys, there are between seven and ten million households with over $10,000 in medical debt. However, there are about 20 million households who earn over $200,000 a year and would have to pay higher taxes to solve this problem.

It took a historic financial crisis, plus a fair amount of Democratic self-delusion, just to get Obamacare passed. One Congress after another has refused to impose relatively tiny cuts in Medicare reimbursements.

 Therefore……….the best we can do for now is to

  1. Cancel the unconscionable debts
  2. Provide more federal funding for emergency care
  3. Create supplemental insurance that will pay the deductibles                                            


A Full Scale Attack on Medical Debt
A Full Scale Attack on Medical Debt

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