Medical Debt Among People With Health Insurance
Discussion
People rely on health insurance to protect against catastrophic medical expenses. When insurance protection falls short, medical debt can result. The high prevalence of medical debt is an indication that health insurance does not always shield people from an unaffordable level of expenses. Most insured people have cost-sharing liability that puts them at risk for medical debt. The median household income in the U.S. in 2012 was $51,017.1 When medical bills exceed five percent of income (roughly $2,500 or less for most households), people are twice as likely to have trouble making ends meet. Cost-sharing liability under most private health insurance plans today exceeds this level. Most Americans don’t have sufficient cash on hand to pay bills of this level and are just one hospitalization away from the bill collector.
The Affordable Care Act will bring about significant improvements in the health coverage system that may prevent or lessen some of the medical debt problems experienced by our interviewees and others:
Subsidies and Market Reforms for Non-group Coverage – The ACA changes market rules for non-group coverage, prohibiting insurers from turning people down or charging them more based on health status. The ACA also limits premium age adjustments to 3:1. And, importantly, under the ACA, sliding scale tax credit subsidies will be available to individuals with incomes between 100% and 400% of FPL. For people who buy non-group coverage today, on average, tax credit subsidies will finance about one-third of the premium.2 As a result, people like Morgan won’t be stranded in policies whose premiums spiral once they get sick and can no longer pass medical underwriting. In addition, under the ACA, Morgan (whose income is only about 220% of the FPL for a family of four) and his family will be eligible for both premium and cost-sharing subsidies. His premium contribution will likely be less than $300 per month for a family policy – one-quarter of what he had been paying. At this income level, Morgan would also qualify for modest cost-sharing subsidies, which will be offered to people with incomes between 100% and 250% FPL.3
Cost-Sharing Limits under Private Health Plans – Starting in 2014, the ACA requires that a $6,350 annual limit per person will apply to all types of cost-sharing for in-network care under all non-grandfathered private health plans – both group and non-group. This change could prove beneficial to people like Gwen and Richard whose deductibles and copays did not count toward their annual OOP limits.
End of Annual Dollar Limits – Starting in 2014, the ACA requires that all health plans remove annual dollar limits on covered benefits. As a result, people like Safiya will not encounter dollar limits under so-called “mini-med” policies that leave them effectively uninsured when coverage runs out.
Essential Health Benefit Standards – Starting in 2014, health insurance policies sold in the small group and non-group markets must cover ten categories of essential health benefits (EHB) – including hospitalization, ambulatory care, rehabilitative and habilitative services, mental health care, and prescription drugs. Mental health parity rules will apply to these and large group health plans as well, so higher cost-sharing or stricter visit limits will not be permitted for these services and exclusions based on self-inflicted injury, as happened to Maisy’s husband, will not be allowed.
Consumer Assistance – Under the ACA, Consumer Assistance Programs (CAP) can be established in states to help all residents – regardless of the source of coverage – answer questions, resolve disputes and appeal claims denials. In the first year of operation, 35 state programs were established. In that year CAPs provided assistance to more than 200,000 consumers, and helped more than 25,000 consumers appeal insurer denials and recover $18 million in reimbursements.4
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These changes notwithstanding, the ACA will not address all of the underlying causes of medical debt. For example:
High Cost-Sharing will Persist under Many Plans – The ACA establishes an affordability standard for health insurance premiums, but not for out-of-pocket medical expenses.5 Even with limits on cost-sharing established under the ACA, deductibles and other cost-sharing will continue at a level above what many people could afford if a significant illness or injury strikes. In the Exchanges, people with incomes between 250% and 400% FPL will likely face deductibles of up to $2,000 or more in silver plans – much higher levels under bronze plans – and OOP limits of $6,350, so would be at risk for having cost-sharing expenses in excess of 10 percent of gross income. People will have the option of enrolling in Gold plans with lower cost-sharing, but with higher premiums.
Some people in large group plans may face cost-sharing in excess of $6,350 next year. The federal government announced it will delay enforcement of the maximum OOP limit for group health plans until 2015. As a result next year, group health plans may require people to satisfy more than one $6,350 OOP limit if the plan uses multiple claims administrators – for example, a pharmacy benefit manager that just administers the prescription drug benefit, separate from other covered medical benefits.6
Limited Protections for Out-of-Network Care – When patients do receive non-emergency care out-of-network, the ACA does not limit the cost-sharing that plans can apply. Nor does the ACA limit balance billing that non-network providers can charge. When people inadvertently receive out-of-network care, such as from an anesthesiologist who doesn’t participate in the same plan network as the hospital and surgeon, some health plans voluntarily undertake measures to limit the consumer’s cost exposure – by covering the non-network service at the in-network level, and/or by basing reimbursement levels on the provider’s billed charge to limit balance billing. The ACA does not require plans to adopt such measures, however.
The ACA does require all health plans to cover emergency services as though they were provided in network, even when patients can’t get to an in-network facility for such care. The ACA also requires health plans to offer an adequate provider network. Another provision of the ACA gives the Secretary authority to require plans to report data on out-of-network cost-sharing so this requirement can be monitored. This data reporting provision has not yet been implemented.
Limits on Essential Health Benefit Standards – The ACA requirement to cover essential health benefits applies only to non-group health plans and fully-insured small group health plans. As a result, Dillon’s large group health plan may continue to not cover the physical therapy that he needs. In plans that are subject to the EHB, federal standards do not precisely define EHB services and leave some flexibility for insurers to substitute services within categories. As a result, for example, autism treatments like those that Sonya’s child received might continue to be uncovered under qualified health plans in many states. In addition, federal standards rely on existing “benchmark” plans that may, today, include non-dollar limits on covered services. Many state benchmark plans, for example, limit the number of covered inpatient days or outpatient visits for rehabilitative care, such as the extended physical therapy that Richard needed. Such benefit limits can continue after 2014.
Lack of Resources for Consumer Assistance – Consumer assistance programs authorized under the ACA have struggled with limited resources. The law authorizes “such sums as may be necessary” to support CAPs, but only appropriated $30 million. The last funding opportunity for CAPs took place in 2012, and no further funding has been announced since then. CAPs are the only entities required, by federal law, to help privately insured people resolve health plan complaints and claims disputes and file appeals. Absent this help, as case studies illustrate, some people may continue to be overwhelmed by insurance paperwork they cannot understand and even incur debt for bills insurance should have paid.
The ACA will provide health insurance to millions of Americans who are currently uninsured, which may also improve access to health care and lower their out-of-pocket expenses and exposure to medical debt. People who are insured will also see improvements in the protection that health coverage offers. However, in light of the limited assets many people have, the problem of medical debt is likely to persist and lead to continued debate over the tradeoffs inherent in providing more comprehensive coverage and limiting federal costs for premium and cost-sharing subsidies.