The Flood of Medical Debt and JP Morgan

My family loves our house dearly, but it has a problem: a wet basement. The first time the basement flooded was a surprise. Since it was unfinished, we cleaned up, threw out the wet stuff, and put a few things on blocks. The next time was worse, so we put in a sump pump, which now chugs steadily away when needed. Unless it breaks or the power goes out. And so, we are left wondering if it is time for major excavation around the foundation to reroute the water.

Medical debt is likewise flooding our country. While a health policy sump pump is available, the return of the annual JP Morgan Healthcare Conference reminds us that it is time to look at the source of the flooding — the economic incentives inherent in our health care system.

The Kaiser Family Foundation estimates four in ten adults in the U.S. carry some form of medical debt. People with medical debt are more likely to postpone care. A new Gallup survey found that almost 40% of those surveyed postponed medical care in 2022 because of costs, a record high in 20 years of the survey. The care postponed was two-and-a-half times as likely to be for a serious as nonserious condition. An ongoing series from Kaiser Health News documents in excruciating detail the emotional and physical toll medical debt has on its victims.

Vulnerability to medical debt is widespread. It is now baked into health insurance benefit design, which has devolved to the point where average out-of-pocket household limits vastly exceed what most households can pay (Figure 1).

Figure 1.

Where are the people most victimized by medical debt? According to the Urban Institute, they are found in counties with disproportionately high rates of chronically ill, uninsured, Black, and low-income people. The counties are also more like to be in the South (Figure 2).

Figure 2. Share of County’s Population with Medical Debt in Collections as of February 2022

Source: Debt in America: An Interactive Map. The Urban Institute. https://apps.urban.org/features/debt-interactive-map/?type=medical&variable=medcoll. Accessed January 26, 2023.

What do all the dark blue regions have in common? Seventy-nine of the 100 counties with highest burden of medical debt are in the eleven states where the legislature has refused to expand Medicaid.

The Affordable Care Act (ACA) is the U.S.’s medical debt sump pump, with the potential to remove debt’s dampening effects from many households. Legislators who are holding these households hostage to political grandstanding must understand the devastating impacts of their posturing.

The map would have been even darker without another bailout — Congress’ pandemic-era expansion of enhanced health insurance subsidies, worth an average of $700 per year, for the 13 million people in the country who buy their coverage on ACA exchanges. Last year’s Inflation Reduction Act extended those subsidies another three years.

But a subsidy shifts the burden rather than lessening it. Especially when the government is picking up the tab, it is worth getting a clearer picture of who is causing this flood in the first place. Which brings me back to the annual JP Morgan Healthcare Conference in San Francisco. Dickens’ top-hatted Ebenezer Scrooge has been replaced by a smoother, open-collared, puffer-jacketed contemporary version, cooing about “market opportunities in new sectors.”

Nine thousand attendees, plus about twice as many hangers-on, made the scene in the Bay Area from January 9 to 12 as they tried not to look past their $28 breakfasts at the homeless people outside the Westin. Captains of pharma, bio tech, and health care information technology pitched their ideas to various guardians of financial capital, looking to secure access to investments in exchange for future profits.

Representatives of bread-and-butter health care services were there too. Gossip at the conference had CVS buying primary care disrupter Oak Street — until it wasn’t. “Big med” showed up — with multistate hospital systems bullish on increasing revenues by acquiring hospitals and physician practices and then raising prices paid by commercial insurers. And then there was primary care. Poor Cinderella might just be the belle of the ball, with its low costs and ability to send loyal patients to lucrative specialty services.

Figure 3.

The diagnostic test providers, physician groups, and hospitals that are driving health care cost increases and comprise the primary sources of medical debt anguish (Figure 3) were some of the main boosters at the conference. With enough attention to the issue of medical debt, they will give it lip service, as the Ascension system CEO did at the conference when he referred to the amount of care provided to people living in poverty “as our most important number.”

We should, however, not fault these entities for playing by the rules that have been set up. The economics of health care does not reward self-restraint. As a result, health care providers will continue to maximize revenues, which has proven to be an easier task than reducing costs. They will raise prices as high as they can and then collect as much of those prices as they can from as many people as possible – hiring consultants for silly slogans and aggressive programs if it will help. For these health care players, the debt holders constitute collateral damage in their sanctioned pursuit of revenues and returns.

Bailing the victims out from the flood of their debt with Medicaid expansions and exchange subsidies is just and needed, and insufficient. We need to change the rules — to reroute the flood waters. Since health care does not work as a market, greater public restraints on the financing and financial practices of health care providers need to be enacted.

At minimum, these reforms should include federal or state limits on balance billing and collection activity. But broader public policy is called for. It is not coincidental that the places with the lowest debt burden are the regions with the greatest public oversight of providers and payers (Figure 2). Oregon, Washington, Minnesota, Maryland, Vermont, New Hampshire, Massachusetts and Rhode Island not only have expanded Medicaid, but also have extensive public oversight of provider and payer activity. The nature of the oversight varies: health insurance regulation policy commissions, provider budget approval, cost growth targets and all payer rate setting are all employed. But these states place constraints on health care market activity, and many people suffer less as a result.

The pump of federal subsidies to relieve medical debt’s threats is necessary but not enough. It is disruptive to reroute the waters of the health care economy. But the foundations of our society likely depend upon it.