High Deductibles Hurt Hospitals, Too

It is not just the patients who can suffer. Medical providers are losing money on deductibles as well.

Consider these statistics from Jacqueline LaPointe’s article in RevCycle Intelligence:

• Patients who owed less than $1,200 for inpatient services had a payment rate of 40.1 percent.
• Patients with balances between $1,201 and $5,000 had a payment rate of 25.5 percent.

• Patients who owed between $5,001 and $7,500 had a payment rate of 10.2 percent.
• Patients incurring a balance between $7,501 and $10,000 had a payment rate of 4.1 percent.
• The payment rate dropped to just 0.9 percent for inpatient accounts with a self-pay balance of more than $10,000.

It’s no wonder that hospitals can sell their old debts so cheaply to collection agencies.

Most hospitals are not very aggressive on debt collection. (Thank goodness!) A Johns Hopkins study found that between 2018 and 2020, only 28 out of 414 hospitals in Texas sued any patients at all. Fewer than ten of these hospitals garnished bank accounts and seized patients’ property.

Hospitals told the study that litigation is used as a last resort, pursued only when the facility believes the patient has an ability to pay, based on their employment status or credit record, and after numerous attempts to contact them have been made.

“We offer charity care, discounts and extremely low, long-term payment plans that are often less than $25 per month,”  said one administrator.

The more prosperous hospitals seem relatively unconcerned about unpaid bills…..generally, the bad debts are not large compared to their profits and subsidies. Collections cost a lot of money to undertake, and the hit to reputation can be enormous if an ugly story hits the media.

Still, bad debt does lead to raised charges on the well-insured. High deductibles hurt hospitals, too, and eventually hurt the rest of us.

In the propaganda for high-deductible insurance, we were supposed to wind up with millions of knowledgeable, price-sensitive consumers –who might forego expensive and questionable healthcare. If people had to pay more for procedures, they would reduce their consumption, providers would be forced to compete based on price, and prices would go down.

Corporate employers would save a lot of money on insurance premiums, thanks to high deductibles; and these savings would immediately be distributed into health savings accounts.

Instead – at least half of the employers who offer high-deductible insurance put nothing into employee health savings accounts. The J.P. Morgan bank announced that anyone making less than $60,000 would have a zero deductible – but that practice is not likely to spread.

Consumers are still essentially helpless – and the big-ticket items that drive health spending are still dictated by doctors, not patients. Prices have not gone down – in part because providers must cover so many unpaid bills.

The AHA Proposes Strong Solutions

The American Hospital Association has proposed the following:

• Restricting the sale of high-deductible health plans to only those individuals with the demonstrated means to afford the associated cost-sharing.
• Prohibiting the sale of health sharing ministry products and short-term limited duration plans that go longer than 90 days.
• Lowering the maximum out-of-pocket cost-sharing limits.
• Eliminating the use of deductibles and co-insurance, and relying solely on flat co-payments, which are easier for patients to anticipate.
• Removing providers from the collection of cost-sharing altogether –and require that health plans collect directly from their enrollees the cost-sharing payments they impose. All these reforms would be opposed, of course – by insurers who do not want the hassle of collecting co-payments, and by employers who would face higher premiums. This is probably too much opposition for the A.H.A. to handle.
• Still, it is interesting to see how far hospitals would go.