Why medical debt relief isn't a cure-all
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Relieving patients of medical debt is en vogue around the country, but preventing it from accumulating in the first place is much harder because it requires addressing some of the U.S. health system's fundamental problems.
Why it matters: Medical debt is ultimately the result of high U.S. health care prices and the choices made to manage them, including by insurers' use of deductibles and other out-of-pocket cost sharing.
- But even chipping away at those prices faces the assured threat of intensive political blowback, even as prices continue to rise.
State of play: Vice President Kamala Harris' campaign website says "she'll work with states to cancel medical debt for even more Americans," and North Carolina's debt relief plan has received national attention of late as a potential model.
- Democratic Gov. Roy Cooper secured a deal with the state's hospitals in which they will receive $3.9 billion in additional funding as part of the state's Medicaid expansion. In exchange, the hospitals will erase $4 billion in medical debt and have new requirements around financial assistance for people with low incomes, Stat reported.
- Just this week, California Gov. Gavin Newsom signed a legislative package that includes new consumer protections for people with medical debt.
Other states have undertaken some form of debt relief over the last couple of years.
- "I think the whole movement on medical debt is to provide immediate relief, which provides those tangible benefits, but also to pair it with upstream efforts," said Heather Howard, a Princeton professor and the author of a Health Affairs piece on states' efforts.
Between the lines: There's a spectrum of policy responses here.
- On one end is one-time debt relief, which has obvious benefits to those whose debt is erased but doesn't do anything to prevent medical debt accumulation going forward.
- Somewhere in the middle are measures that protect patients from the impact of medical debt, such as by preventing medical debt from appearing on credit reports, restricting the sale of medical debt or capping interest rates on medical debt. The Biden administration has also been active within this bucket.
- Then there are approaches that strengthen hospitals' financial assistance requirements, which could help some people — usually lower-income patients — avoid new debt.
And then at the other end of the spectrum would be anything that limits what providers charge, limits insured patients' out-of-pocket liability or further decreases the uninsured rate — all enormous lifts.
- Tackling prices is "not always politically feasible, and people get stuck in the middle of that, and so I think it makes sense in this time and age with the deductibles being where they are and the prices being where they are that we at least protect the patients first," said Maanasa Kona, an assistant professor at Georgetown University.
- "The thing that would help prices the most ... is to regulate prices of health care, but this is clearly a very politically difficult thing to do," she added.
The intrigue: The medical debt conversation dovetails with scrutiny on nonprofit hospitals' tax-exempt status and whether they're offering commensurate amounts of community benefit, which includes charity care.
- Federal financial assistance requirements are vague, experts say, although some states have taken steps to better define them.
- There's bipartisan congressional interest in scrutinizing whether hospitals are fulfilling their obligation, and lawmakers have expressed their alarm over reports of nonprofit hospitals suing patients or failing to offer discounted care to eligible patients.
Here's a glimpse of the messy debate over whether nonprofits are earning their tax break:
- Just this week, the American Hospital Association released an analysis that found 2,500 nonprofit hospitals were exempt from $13.2 billion in taxes in 2020 but provided $129 billion in community benefits.
- But a study published in JAMA — also this week— concluded that nearly 3,000 nonprofit hospitals received a $37.4 billion total tax benefit in 2021, and a report by the Lown Institute earlier this year found that 80% of nonprofit hospitals spent less on financial assistance and community investment than the estimated value of their tax breaks.
- The Lown Institute directly ties that gap — which it calls the "fair share deficit" — to medical debt, saying it was large enough in 2021 to erase 29% of the country's medical debt.
The bottom line: "Yes, the underlying problem continues," Howard said. "That's the history of health reform in the U.S. We're doing incremental expansions, we're providing immediate relief, but it's hard."
