What is the most common reason for personal bankruptcy filings? If you guessed medical costs, you are right on the money. Medical debt is cited more than 62% of the time in such proceedings, and things are only getting worse. This issue is of particular interest for women, who tend to use the healthcare system more because of pregnancy, childbirth, and generally longer life spans.
Healthcare expenses are soaring in the U.S., and the Affordable Health Care Act has had only moderate success addressing the problem. Consider the cost of prescription drugs, for which Americans pay 50% more than U.K. residents, according to the Massachusetts Group Insurance Commission.
Why prescription drugs are so expensive
What is causing this astronomical rise in drug prices? The GIC notes that specialty drugs – which treat specific and often deadly diseases – are becoming more common, and sport astonishingly high price tags. No doubt you’ve heard about Sovaldi, the $1,000 pill for Hepatitis C. If one tablet could cure the disease, that cost might be defensible – but a 12-week course of treatment is necessary, pushing the tab up around $84,000 to ensure that the disease has been eradicated.
Mergers and acquisitions in the pharmaceutical industry also play a part. Big pharma spent much of 2014 gobbling up other, usually smaller, drug companies; this astoundingly long list shows just how much energy and money was put into pharmaceutical M&A activity last year. Reduced competition and industry domination enables big pharma to keep drug prices high, it seems.
But, you might say, it’s expensive to develop new drugs; those poor drug companies should be able to recapture some of their research and development dollars, right? The GIC punches a hole in this argument, though, by noting that for every $1 spent in R&D money in 2012, drug manufacturers spent another $19 advertising and marketing the drug. You know all those drug commercials that now flood your TV screen? They’re not cheap, although the $3 billion cost pales compared to the $24 billion spent bribing, er, encouraging doctors to prescribe the new drug.
Medical debt can haunt you for years
High healthcare bills affect entire households, and often cause financial trauma to the patient’s whole family. The Centers for Disease Control and Prevention released a study early last year showing that nearly 27% of U.S. families experienced financial hardship in 2013 because one family member got walloped by a huge medical bill.
Medical debt can affect even the well-insured. A Kaiser Family Foundation study found that at least one-third of Americans had trouble paying medical bills in 2013 – including persons with health insurance. Problems occurred when either premiums were unaffordable, and/or out-of-pocket expenses became onerous. Often, people thought that certain procedures were covered by insurance when they were not, and consumers try to keep premiums lower by taking bigger deductibles. This can spell disaster when a health crisis occurs.
The fact that just about anybody can be suddenly faced with an unexpected hospital bill of gigantic proportions makes this problem very scary, indeed. What is worse is that consumers are often dunned for piddling amounts of money – as well as medical debts that have already been paid.
In December, Consumer Financial Protection Bureau Director Richard Cordray spoke on the issue of the medical debt dogging Americans, giving an example of a man who became enmeshed in a battle over a bill he had paid off out of his own pocket, despite the fact that he believed his insurer should have covered the cost. His “debt” was turned over to a collector, who notified the three credit agencies – Experian, Equifax, and TransUnion – that the bill was unpaid. The man complained to the CFPB after multiple efforts to rectify the situation with the collection agency. Interestingly, not only was this individual insured, but also had a Health Savings Account for consumers with high-deductible health plans.
Unlike other consumer debt, the amount of medical debt that gets sent to collection is astoundingly small: the median amount is $207. Of those Americans with any type of outstanding debt on their credit reports, approximately 50% are for healthcare-related debt.
Imagine having your credit profile marred by such a small debt – particularly if you had paid if off already!
One man’s journey: Steven Brill
The reasons behind escalating medical costs in this country are many and varied, and impressively elucidated by Time journalist Steven Brill in Bitter Pill: Why Medical Bills Are Killing Us. In a recent LinkedIn post, Brill recounts his experiences with the U.S. healthcare delivery system as he underwent emergency surgery to repair an aortic aneurysm, a possibly life-threatening disorder.
Brill is upfront regarding his satisfaction with and admiration for the system that so adroitly fixed a biological snafu that could have killed him at any given moment. Still, he sticks to his guns regarding his disapproval of the runaway costs associated with a bloated, and often inefficient, medical care delivery model. From overblown salaries for healthcare bigwigs to the padded “chargemasters” that hospitals use to ramp up the costs of aspirin tablets to bandaging materials, Brill maintains that the system works very well for those who make money from it. The rest of us? Not so much.
How do they manage to keep us paying these inflated costs? Simply put, they take advantage of our fear. Who, upon hearing that a loved one needs a pricey medical procedure, will dicker about the cost? What patient, when told that he or she must be whisked off to surgery right away or take the chance of dropping dead within hours – from a heart attack, stroke, or cancer – will stop to question the need for such urgency?
Medicine is a money-making machine – and we’re footing the bill
I have thought for some time that there is an unsavory relationship between the health insurance industry and the medical community, and I firmly believe that both make outrageous profits from their lucrative alliance.
Think about it: Without insurance, no one would be able to afford even the most simple medical procedure, or the absolute minimal hospital stay. With insurance, though, we seldom think about medical costs, even when a plan isn’t as robust as we believe. As I have pointed out earlier, consumers are often hit with bills that they thought were covered; apparently, neither insurers nor the medical care community thought to tell them otherwise. And, so, they proceed, unaware of the jolt in store for them.
As for insurers, paying out claims is expensive, certainly. But the amount of money they rake in on monthly premiums – particularly from the millions of people who barely use the system every year – makes the outlay much more palatable. Remember, too, that insurers don’t usually pay the full amount you see on your bill, but a negotiated amount with the health provider.
Because the costs are so inflated, everyone- with the possible exception of the consumer – makes out like a bandit. Consider that Kaiser recently reported that an employer-based family insurance plan cost nearly $17,000 annually. Multiply that by the 149 million families covered, and try to keep your jaw from dropping as you tally how much money these guys are making.
And, with the advent of the ACA, every citizen must now purchase health insurance, or face increasing fines. Talk about a guaranteed income stream!
Can we, the Janes and Joes of America, defend ourselves against the great healthcare-industrial complex? Yes, but we need to become educated consumers. Next time, we’ll talk about how being an active player in your own health care can help protect you from becoming the next financial victim of the medical industry.