Exploring the link between financial assistance for medical care and medical collections

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In 2020, Americans spent $4.1 trillion in health care . Despite private insurance coverage and government programs like Medicare and Medicaid that cover all or part of the cost of medical treatment, consumers continue to incur significant medical expenses. By 2028, health care spending is expected to reach $6.2 trillion.

The Affordable Care Act (ACA) requires nonprofit hospitals to establish financial assistance policies, often referred to as “charitable care.”1—for consumers who are unable to afford these expenses. In this blog, we explore the link between eligibility for these financial assistance programs and the prevalence of medical collections using data from the CFPB. Make ends meet investigation.

The prevalence of medical collections

Many Americans, especially those with low incomes, cannot afford the high cost of medical care, and unpaid medical debts can eventually end up in collections and on consumer credit reports. AC prohibited non-profit hospitals from reporting medical debts as collections to credit reporting companies, or selling the debt to another party, without first trying to determine if the patient would be eligible for their assistance policies financial. We find, however, that even with these policies in place, a large percentage of low-income consumers in 2018 had at least one medical collection on their credit reports.

Data indicates that as household incomes decline, a higher percentage of consumers have medical collections. Figure 1 shows that 17.5% of those with household incomes between $20,001 and $40,000 in 2018 had at least one medical collection on their credit report. This fraction increases to 27.3% for people whose household income was less than $20,000.

Figure 1: Percentage of households with at least one medical collection in December 2018, by income

Eligibility for financial assistance and medical collections

Some state laws have established eligibility thresholds as a percentage of federal poverty levels, which are based on both income and household size. Therefore, both factors are often relevant in determining a person’s eligibility for financial assistance. Although we do not have comprehensive data on household size Make ends meet survey, we know if children are present in a household. Combining this information with income data provides insight into the relationship between financial aid eligibility and the prevalence of medical recoveries on consumer credit reports.

Figure 2 shows that among people living in households with children and whose income is less than $40,000, many would fall below 200% of the federal poverty line for their household size2—38.1% had at least one medical collection on their credit report in December 2018. That’s nearly three times the rate for people without children earning the same amount.

Figure 2: Percentage of households with at least one medical collection in December 2018 by household income and composition

Bar chart comparing medical recovery rates between people with and without children earning $40,000 or less and earning $40,001 or more per year.  Among those who earn $40,000 or less, 38.1% of people with children and 13.4% of people without children had at least one medical visit in December 2018. Among those who earn more than $40,000 a year, 10.6% of those with children and 6.3% of those without children had at least one medical collection.

Regional differences in medical collection results

Different results also occur depending on the region of the country in which the consumers live. Figure 3 shows that the North East (shown in red) has the fewest medical collections per person and the lowest average collection balances among those with one or more collections. The South (in green) has the highest percentage of individuals with a medical collection, while the number of collections and total amount owed are highest in the Midwest (in yellow).

Some of the regional differences may be explained by differences in uptake of Medicaid expansion, differences in income levels, or differences in medical insurance coverage rates. State laws and programs related to the provision of financial assistance also appear to differ significantly across the country. Further research is needed to determine to what extent the different results in Figure 3 are also the result of differences in state financial aid policies.

Figure 3: Prevalence and size of medical collection by region

Three-part bar chart showing, for each of the four regions of the United States, the percentage of people who have at least one medical collection, the average number of medical collections among those who have at least one, and the average total balance of these medical collections.  collections.  19.2% of the inhabitants of the South have at least one medical collection.  Those with medical collections in the South have an average of 3.31 medical collections for an average total balance of $2,025.  13% of Midwesterners have at least one medical collection.  Those with medical collections in the Midwest have an average of 4.97 medical collections for an average total balance of $2,713.  8.9% of Western residents have at least one medical collection.  Those with medical collections in the West have an average of 3.41 medical collections for an average total balance of $1,998.  7.5% of the inhabitants of the Northeast have at least one medical collection.  Those with medical collections in the Northeast have an average of 2.03 medical collections for an average total balance of $1,162.

The average number of medical collections and the average balance of medical collections are calculated for those who have at least one medical collection on their credit file in December 2018

Impact of deleting certain medical collections from credit files

The three national credit reporting companies – Experian, Equifax and TransUnion – have announced changes to how unpaid medical bills will appear on consumer credit reports. In July 2022, all three began removing paid medical recoveries from credit reports, and beginning in 2023, they will no longer report medical recoveries under $500. The companies have also increased the time after which a medical bill can appear on a credit report from six months to a year.

These changes have the potential to improve the credit of low-income people who, despite possible eligibility for financial assistance, have medical collections on their credit reports. However, many low-income consumers are still unlikely to benefit because their existing medical bills exceed the $500 threshold. Among consumers with medical collections on their credit reports, 48% of those who made less than $40,000 a year in 2018 had at least one collection over $500 at the time. Collections like these will continue to weigh on consumer credit scores. Notwithstanding the changes to credit reporting, access to financial assistance will continue to be important for the lowest income households.

Conclusion

Even though many low-income consumers are eligible to receive financial assistance, a large percentage of low-income consumers have medical collections on their credit reports. We lack data to identify debt incurred with nonprofit hospitals, so many of these debts may be from for-profit and other providers. Non-profit hospitals, however, account for approximately 49 percent of all hospitals . These hospitals must provide financial assistance and other community benefits in exchange for the significant tax benefits they receive, but our results suggest that many consumers are not getting the financial assistance they need.

Different parts of the country also experience very different outcomes with medical collections, some of which can be attributed to differences in state laws and other programs regarding financial aid. Future research could explore the extent to which differences in legislative and regulatory environments influence the provision of financial assistance and lead to better financial outcomes for consumers.

The opinions expressed here are those of the authors and do not necessarily reflect the views of the Consumer Financial Protection Bureau. Links or citations in this article do not constitute endorsement by the Bureau.

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