It’s time to end the racially unjust medical debt crisis – California Health Report
It’s the kind of case lawyer Helen Tran handles too often. An Asian-American small business owner came to her neighborhood Legal Services office in Los Angeles asking for help with a surprise five-figure medical bill.
The woman had health insurance. Yet, due to confusion caused by misinformation from her insurer, she had received two chemotherapy treatments from an out-of-network provider she believed to be in-network. This simple mistake ended up devastating her financially.
“The best we could do at that point was negotiate half, so she would pay half,” Tran told me. “She used all her savings to pay.”
Millions of Americans deal with medical debt every day. According to a recent JAMA study, approximately 18% of people in the United States had medical debts in collection. Data shows that collection agencies held $140 billion in unpaid medical bills in 2020. According to the JAMA study, medical debt is now the largest source of debt in collections in the United States.
As with many societal ills, the burden of medical debt is not shared equitably. Nationally, about a third of working-age black Americans have medical debt, compared to about a quarter of white Americans. Nearly 10% of people of color in California have medical debt in collection, compared to about 7% of whites. Additionally, the uninsured rate among people of color in California is 13%, double that of white Californians, which is 6%.
As Brianna Wells, author of a report on racial inequity and medical debt, explained to me recently, massive unemployment resulting from the COVID-19 pandemic has worsened the medical debt crisis, especially in communities of color.
“Disproportionately, black people and Hispanics (are) unemployed, have lost their jobs,” she said. “It could also mean the loss of employer-provided health care.”
Research by California’s Legislative Analyst’s Office, a nonpartisan budget and policy research agency, supports this claim. The bureau found that about 200,000 people lost their employment-based health insurance coverage in 2020.
But many workers who lost their jobs likely lacked employer-provided care from the start. Although the Affordable Care Act of 2010 increased health care coverage, particularly in states like California that have expanded Medicaid, an estimated 3.2 million Californians are expected to remain uninsured in 2022. The majority (65 %) of these individuals belong to the state’s undocumented immigrant population. While California has a wide range of immigrant communities, most of the state’s undocumented immigrants are from Latin America. Currently, Latino Californians are more than twice as likely to be uninsured as non-Hispanic white Californians. This likely stems from the fact that Medi-Cal, the state’s Medicaid program, excludes many undocumented Latinos, a group also unable to purchase federally funded Affordable Care Act plans. Native Americans in California are also disproportionately uninsured; approximately 14% of the state’s indigenous population lacks medical coverage.
Being uninsured makes people extremely vulnerable to medical debt. They often face high out-of-pocket expenses for medical treatment, which puts health care out of reach. Even people who have health insurance can end up with crippling medical debt, like Tran’s Asian-American client. According to the Commonwealth Fund, around 28% of working-age adults are underinsured, meaning they have health insurance but face exorbitant costs like deductibles and co-payments. While the Affordable Care Act has helped reduce the financial burden of medical care for some Californians through patient protections, a maximum cap on out-of-pocket expenses, and premium assistance, the cost of insurance illness and medical treatment remains insurmountable for many.
Again, the pandemic has exacerbated this vulnerability as people lose their jobs and therefore their medical coverage and income to pay for healthcare expenses. Some Californians are also facing long-term medical costs associated with the lingering effects of COVID-19.
Heavy medical debt makes it less likely that people will seek the health care they need, further exacerbating health disparities and perpetuating cycles of poverty. According to a KFF report, about a third of people struggle to pay for needed healthcare because of their medical debt. Additionally, 43% of patients with rising medical bills delay receiving a medical test or treatment recommended by their doctor, which can have serious and even more costly health consequences.
Medical debt exacerbates existing inequalities, forcing households to choose between rationing care or cutting other vital expenses. Around 70% of indebted families surveyed by KFF in 2016 said they had reduced their spending on food, clothing or other basic needs in order to pay off their debt. As a result, families burdened with medical debt may struggle to build wealth, access vital preventative care, or make long-term investments to improve their quality of life.
And let’s not forget surprise medical billing. This blatant practice often follows emergency situations in which patients did not have the possibility of consulting a provider in the network. This also occurs when patients encounter an out-of-network specialist or provider within an in-network medical facility. About two-thirds of American adults worry about the unforeseen costs and financial strain this form of billing can present. Surprise claims are relatively common, with 18% of all ER visits and 16% of in-network hospital stays resulting in out-of-network charges.
The good news is that, at the end of 2020, Congress passed legislation to end surprise billing. Health plans will now be required to cover surprise bills at in-network rates, and out-of-network providers will no longer be able to charge patients exorbitant amounts. The new law is expected to come into force in January 2022, as regulators work to finalize the details. In the meantime, people like Tran’s client will still have to grapple with the consequences of these surprise medical bills.
Medical debt is a persistent problem affecting millions of California residents. Strengthening the ACA, increasing state-level subsidies, and continuing to expand Medi-Cal will prove crucial to reducing California’s uninsured rate and alleviating medical debt. Recent actions at the state level to expand access to Medi-Cal and health market subsidies should reduce the number of uninsured and underinsured Californians and reduce fear of possible medical debt.
However, California policymakers can go even further by passing AB 1020 that would enact additional protections against medical debt and strengthen existing legislation that mandates charitable care. Under current California law, hospitals are required to provide financial assistance or “charitable care” to uninsured and underinsured Californians. Unfortunately, many low-income Californians do not receive this assistance. AB 1020 would increase the eligibility threshold for charitable care and strengthen the ability of state agencies to enforce existing laws. Additionally, the bill would limit the ability of hospitals to sell patient debt to third-party buyers, who have an incentive to aggressively pursue the debt to generate a profit.
AB 1020 offers a robust solution to the medical debt crisis, but more needs to be done. President Biden’s US Bailout Plan (ARP) is a model for action at the federal level that can be built upon. It covers 100% of health insurance premiums until September this year for people who lose their health benefits at work. It also increases subsidies for people who purchase insurance through the ACA’s health insurance marketplaces (such as Covered California).
California’s own state legislature increased subsidies for health insurance in 2019. Continued expansion of federal and state subsidies would help more Californians get health coverage and reduce the risk of serious medical debt. The California Legislature should also expand access to Medi-Cal to all eligible undocumented adults and build on the excellent progress already made to expand coverage to undocumented young adults in 2019 and seniors ages 50 and older. This year.
Federal and state policymakers have made progress in expanding health coverage and consumer protections for low-income people. They must continue to go further if we are to finally eliminate racial health disparities and free communities of color from a major source of crippling debt. As the story of Tran’s client illustrates, unexpected medical debt can have life-altering consequences. His client lost years of savings and the ability to retire due to an insurance agent’s misinformation. Unfortunately, stories like this are all too common. It’s time for lawmakers to step in and protect vulnerable Californians from the financial calamity that can be wrought simply by seeking medical attention.
Denzel Tongue writes a column for the California Health Report on the intersection of racial justice, public policy, and health equity. He is a master’s candidate in public policy at the Goldman School of Public Policy and a fellow of the California Initiative for Health Equity.