What is Medical Debt?

what is medical debt
  • Medical debts are due to unpaid services which are not covered by health insurance and are expected to be paid out-of-pocket by the patients.
  • The costs of healthcare in the US are at staggering heights already and can put the patient to bankruptcy.
  • Health insurance companies offer coverage to patients but hospitals and related services consume most of it leaving the patients to be charged with extra costs.

Medical Debts and the Cost of Healthcare

The US healthcare system is in a grapple between physicians, pharmaceutical companies, insurance companies, and shareholders, and caught in the middle of it all are the patients. In 1960, total spending on healthcare made up 5% of the total GDP. In 2020, it reached four-fold to 19.7% so that in every dollar an average American spends, 0.20 cents USD will be going to healthcare. Part of this can be blamed on inflation but history shows that healthcare always outpaces the economy and healthcare costs grow faster consuming its lion’s share of the economy. Despite being a high-income country, the models implemented in the Healthcare system are cure-centered rather than prevention-focused and the government is paying more but getting less. The US spends more money on healthcare and yet the life expectancy compared to other high-income countries is lower.

It is not a hidden fact that healthcare is a business and that it needs operational costs to function and maintain its services. Compared to hospitals in other countries, the US pays twice as much to hospitals and physicians. Inpatient and outpatient care takes the largest pay which includes physician fees for surgical care, special visits, professional fees, facility fee, etc. Similarly, the costs of prescription drugs are higher in the US compared to its neighboring countries. Former president Donald Trump signed executive orders with directives to lower drug costs, particularly in the Medicare program. President Joe Biden also during his campaign period, planned to give the federal government authority to negotiate with all of the purchasers to lower drug costs.

The Business of Health Insurance

Before Medicare and Medicaid, it was Blue Cross and Blue Shield was the main insurance provider in the US but it was not a business back then. It was made purely on the thought of a worst-case scenario covering the individual for his medical needs but right after World War II, employers started to offer their employees medical insurance. From 1940 to 1945, there was a massive rise in the demand for health insurance rising from 10% to over 65% which created a great business opportunity for profit companies. In 1951, Aetna and Cigna came and took over the spot and in 1965, the late President Johnson established the Medicare and Medicaid Program.

There were no profit hospitals during the period of Medicare and Medicaid but in the early ‘80s, 1 in 7 of the hospitals in the US in run by an investor-owned multi-hospital system. Blue Cross Blue Shield stayed afloat but in the ‘90s, started selling its stocks. As hospitals were gaining more and more, the physicians’ professional fees, administration, and operational costs rose along with it. Medical billing has shifted the philanthropical approach to a more profit-earning corporation approach. The patients now have been bludgeoned repeatedly over these factors and considering their life income and status on the economic ladder, they may get themselves sucked into a whirlwind of medical debt.

How to avoid a Medical Debt?

On the patient’s side, he should be aware of the current status of the healthcare system he is in already so that he can prepare and avoid medical debt. Here are a few suggestions:

  1. Price Comparison. Seek medical insurance that is best suited for you. And when we say “you” we mean your lifestyle, monthly income, expenses, existing medical condition, and demographics. An overpriced, broadly-covering insurance may not always be feasible for everyone and instead of medical debt, you may find yourself buried elbow-deep in a different type of debt.
  2. Understand Your Health Insurance. The insurance policy may be tedious to read, let alone look at but a representative may help you get a gist of it and explain to you the coverage you will be under. The in-network and out-network coverage is important so that you can avoid that extra hundred-dollar bill you receive and maximize fully for what you pay for.
  3. Health Savings Account. The government does not tax this type of savings account and you can use this on top of your insurance that can cover your copayments and deductibles. Not everyone is entitled to open this type of account therefore a general savings account can cover your copayments.
  4. Double Check Medical Bills. Double-check your medical bills once you receive them. Recall if a certain procedure or encounter has been really made and call the billing party immediately for these types of errors to avoid piling up bills and make sure that if it’s true, pay immediately.
  5. Negotiate a Payment Plan. A hospital can offer discharged patients a payment plan or others may call it a “charity” care plan. They will take into consideration your monthly income, debt owed, and personal details for you to be enrolled. This may take a while to get paid depending on how aggressive you are in finishing it.
  6. Identify In-network Providers Around You. A safe way to avoid medical debt is to prevent out-of-pocket payments at all, to begin with. Get to know who, where and what you are going to encounter, and stay vigilant if what is being offered is under the coverage of your insurance.

What drives health spending in the U.S. compared to other countries – Peterson-KFF | Health System Tracker Why Medical Bills In The US Are So Expensive | Concerned About Debt? Here’s How to Prevent it

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