Trade-Offs Getting Tougher: Problems Paying Medical Bills Increase for U.S. Families, 2003-2007

Tracking Report No. 21

September 2008

Peter J. Cunningham

Approximately 57 million Americans belonged to families struggling to pay medical bills in 2007 — a jump of 14 million individuals since 2003, according to a national study conducted by the Center for Studying Health System Change (HSC). Difficulties with medical bills grew among both nonelderly insured and uninsured populations. While uninsured individuals experience medical bill problems at significantly higher rates, the majority of those facing such difficulties — 42.5 million people — actually had some form of insurance coverage. Roughly 2.2 million individuals with medical bill problems lived in families that declared bankruptcy due to their health care debts, and an even larger number reported additional financial repercussions, including difficulty covering basic necessities and the need to borrow funds. The growing prevalence of medical bill difficulties — particularly among the insured — is the primary driver behind the increase in Americans reporting forgone medical care due to cost between 2003 and 2007.

Medical Bill Problems Increase

With health care expenditures continuing to outpace income growth, a growing number of families find themselves shouldering higher out-of-pocket costs for both health insurance premiums and medical services. Consequently, covering the expense of medical care has become increasingly burdensome, likely forcing many households to make painful financial trade-offs and increasingly skip necessary health care.

The share of Americans living in families with medical bill difficulties rose from 15.1 percent in 2003 to 19.4 percent in 2007, based on findings from HSC's 2007 Health Tracking Household Survey. In absolute terms, this represents more than 57 million Americans across all age groups who reported problems paying medical bills over the prior 12 months in 2007 — an increase exceeding 14 million people compared with 2003.

Medical bill difficulties stemmed from various health issues, though the majority of individuals indicated that their problems resulted from a family member's illness (60.4%), while 28.6 percent attributed their bill problems to an accident or injury. Approximately 8 percent of respondents reported that the birth of a child was the cause of their medical bill difficulties.

Nonelderly Insured and Uninsured See Rise

The rate of medical bill problems climbed for all nonelderly individuals, irrespective of their insurance type or uninsured status. Highlighting the uninsured population's vulnerability to health care expenses, uninsured people were considerably more likely to belong to families with medical bill problems (34.4%) than their insured counterparts (18.3%). Notably, enrollees in Medicaid or other state-sponsored programs also exhibited a relatively high rate (28.4%) of medical bill difficulties, though most of these individuals are poor or have low incomes, making them susceptible to even modest out-of-pocket costs.

In contrast, no increase in medical bill problems was observed among individuals aged 65 and older, nearly all of whom have Medicare coverage. On the whole, elderly Medicare beneficiaries — especially those carrying supplemental private insurance — experience lower rates of medical bill problems relative to the nonelderly population, despite their higher health care utilization and greater out-of-pocket spending. This pattern may reflect the higher priority elderly individuals place on health care and — compared with families raising young children — fewer competing financial demands requiring trade-offs with essentials like mortgage or rent payments, food, and clothing.

Insured Low-Income People Less Protected

Between 2003 and 2007, the proportion of Americans experiencing medical bill problems grew across every income bracket, including those with moderate and higher family incomes. Overall, the incidence of medical bill problems is substantially greater among low-income individuals — 31.8 percent in 2007 for those earning below 200 percent of the federal poverty level, equivalent to $41,300 for a family of four in 2007, compared with 12.4 percent for individuals in families at or above 400 percent of poverty.

This disparity reflects both the higher uninsured rate among low-income populations and the fact that having insurance appears to provide less of a buffer against medical bill problems for those with lower incomes. Among low-income individuals, 36.1 percent of the uninsured reported medical bill problems versus 30 percent of the insured. For higher-income individuals, the gap was far more pronounced: uninsured people were three times as likely to report such problems (32.3%) compared with the insured (10.7%). Although a larger share of insured low-income people are enrolled in Medicaid and other public programs — which typically require less patient cost sharing than private insurance — even relatively small expenses can impose a significant burden on those with limited financial resources.

Amount, Duration of Medical Debt Varies

The vast majority of individuals who experienced medical bill problems during the previous year still carried medical debt at the time of their survey interview (90%). However, the magnitude of that debt varied widely, with roughly one-quarter owing less than $800 and another quarter carrying debt of approximately $5,000 or more. About 10 percent had accumulated debt of $12,000 or higher. Debt amounts tended to be greater for individuals who lacked insurance at the time the debt was incurred compared with those who had coverage.

The timeline and anticipated duration of medical debt also showed considerable variation. Among those carrying medical debt, fewer than half (42.8%) had first taken on their debt within the preceding year, while approximately one-third had incurred their debt two or more years earlier. Likewise, under half (44.7%) expected to retire their debt within the coming year, and roughly one-quarter anticipated it would take four years or longer to fully pay off what they owed.

Financial Fallout of Medical Bill Problems

In both 2003 and 2007, the majority of individuals in families struggling with medical bills were forced to make significant sacrifices, with two-thirds reporting difficulty paying for basic necessities such as food, clothing, mortgage, or rent, and more than half postponing major purchases. Additional financial consequences included 62 percent being contacted by a collection agency, and over half needing to borrow money in order to cover their medical expenses.

Furthermore, one in five individuals with medical bill problems considered declaring bankruptcy as a result. Of those, roughly 2.2 million people lived in families that actually proceeded to file for bankruptcy due to medical bill problems, a figure consistent with estimates from other research. Unsurprisingly, higher levels of debt drove more people to contemplate bankruptcy; 38.6 percent of individuals with medical debt of $5,000 or more considered filing, compared with approximately 9 percent of those owing $1,000 or less.

Medical Bill Problems and Access to Care

In 2007, roughly 10 percent of individuals with medical bill problems reported being turned away by medical providers as a direct consequence of their outstanding bills. Beyond outright denials, many others went without needed medical care due to anxiety about the cost. Both insured and uninsured individuals with medical bill problems reported substantially higher rates of unmet medical needs in the preceding year due to cost compared with those who did not have medical bill problems.

Additionally, financial obstacles to obtaining care grew for insured individuals between 2003 and 2007, with the steepest percentage increases occurring among insured people who had medical bill problems (rising from 6.6% with unmet need due to cost in 2003 to 11.7% in 2007). While uninsured individuals consistently experienced much higher levels of unmet needs due to cost relative to the insured, this rate did not change between 2003 and 2007. Prior HSC research demonstrated that unmet medical needs for uninsured people increased for other reasons, primarily related to health care system factors.

Consistent with the financial consequences of medical debt, the adverse effects on access to care intensified with larger and longer-lasting debt burdens. For instance, a significantly higher proportion of individuals with debt of $5,000 or more reported unmet medical needs due to cost (19%) compared with those carrying debt under $500 (11.4%).

Advice or Assistance From Medical Providers

As the cost of care increasingly serves as a barrier — even for insured individuals — medical providers are likely to take on a greater role in offering guidance or help to patients contending with substantial medical bills and debt. Among those who reported difficulties paying medical bills, more than half said their health care providers recommended a payment plan to address the outstanding balance.

Other forms of provider assistance were reported less frequently: offering a discount (16.2%), informing patients about free care sources (6.8%) and public assistance programs (14.6%), suggesting that patients obtain a loan (11.5%), and referring patients to a different provider (7.1%).

However, when researchers analyzed the relationship between these individual provider assistance measures and unmet medical needs, only one action — informing patients about sources of free care — was linked to a reduced level of unmet medical needs due to cost. Among individuals whose provider told them about free medical care options, 9.2 percent reported unmet medical needs because of cost, compared with 14.7 percent of all people with medical bill problems.

Implications

These findings confirm that escalating health care costs broadly — and rising out-of-pocket expenses specifically — are intensifying the financial strain of health care on American families, fueling greater financial stress and often forcing them to sacrifice other essential goods and services, including medical care itself. Moreover, the growth in medical bill problems is affecting not only those who have historically struggled with medical expenses — low-income and uninsured populations — but also a growing number of insured middle-income households. The increase in medical bill difficulties undoubtedly mirrors rising out-of-pocket costs for care. Surging fuel prices, broader inflation, the housing foreclosure crisis, and an anticipated economic downturn — whose full effects did not materialize until 2008 — also may have begun intensifying financial pressures on families in 2007.

Acknowledging that insurance coverage alone may no longer be adequate to shield many individuals from the high cost of health care, the affordability of both health insurance and medical services has become a central concern in numerous state and national reform proposals. Many policy approaches focus primarily on making health insurance premiums more affordable, calling for income-based sliding-scale subsidies. Fewer proposals address tying deductible and copayment or coinsurance levels to a person's income, even though these expenses have risen in recent years and can create serious financial hardship even for individuals who can manage their premium payments. One notable exception is the Massachusetts Commonwealth Care program, which incorporates sliding-scale premium subsidies and places caps on out-of-pocket spending for services based on income. Likewise, the State Children's Health Insurance Program mandates that total cost sharing — including premiums, deductibles, and copayments — not exceed 5 percent of family income.

Nevertheless, no single universally accepted definition of affordability exists at the national level. In fact, disagreements over what constitutes affordability were among the factors that contributed to the failure of California's health reform initiative, which lacked any provisions to limit out-of-pocket spending for services. Establishing affordability standards requires balancing the effect on state budgets with the financial burden that a family can reasonably be expected to shoulder. Furthermore, affordability will differ based on the fiscal health of state budgets, regional cost-of-living variations, the socioeconomic and health characteristics of the population, and the proportion of residents who already have health insurance.

In the absence of state or federal reforms aimed at making health care more affordable for families, more targeted interventions could include boosting awareness of and referrals to free or lower-cost medical care options, such as federally funded community health centers, which expanded during this decade. Other HSC research indicates that most uninsured individuals are unaware of free or reduced-cost care sources in their communities, and it is probable that awareness is even lower among insured people struggling with medical bills. The findings in this report suggest that provider referrals to free care sources are effective at reducing access problems among those with medical bill difficulties, although very few patients actually receive such referrals. Initiatives such as Project Access, which originated in Buncombe County, N.C., and has since been replicated in other communities nationwide, seek to raise awareness and coordinate free medical care resources within communities. Such efforts may offer at least some interim relief and support to the growing number of families who can no longer afford to obtain medical care through the conventional health care system.

Notes

1. Catlin, Aaron, et al., "National Health Spending in 2006: A Year of Change for Prescription Drugs," Health Affairs, Vol. 27, No. 1 (January/February 2008); Banthin, Jessica S., Peter J. Cunningham and Didem M. Bernard, "Financial Burden of Health Care, 2001-2004," Health Affairs, Vol. 27, No. 1 (January/February 2008); Schoen, Cathy, et al., "How Many Are Underinsured? Trends Among U.S. Adults, 2003 and 2007," Health Affairs, Web exclusive (June 10, 2008).

2. The measure of medical bill problems used in this study differs from that of a recent study published by The Commonwealth Fund (41% with medical bill problems in 2007). The latter study used a composite measure that included the same question used in the HSC study, as well as additional questions on whether the person had to change their way of life due to medical bills, whether they had been contacted by a collection agency, and whether they had medical debt they were paying off over time. In addition, The Commonwealth Fund study was based on persons ages 19-64, while the HSC study was based on the entire population. Although the estimates differ, both studies report an increase in medical bill problems. For more information on the study published by The Commonwealth Fund, see Doty, Michelle M., et al., Seeing Red: The Growing Burden of Medical Bills and Debt Faced By U.S. Families, The Commonwealth Fund, New York, NY (August 2008).

3. Desmond, Katherine A., et al., The Burden of Out-of-Pocket Health Spending Among Older Versus Younger Adults: Analysis From the Consumer Expenditure Survey, 1998-2003, Medicare Issue Brief, Kaiser Family Foundation, Menlo Park, Calif. (September 2007).

4. Himmelstein, David U., et al., "Illness and Injury as Contributors to Bankruptcy," Health Affairs, Web exclusive (Feb. 2, 2005).

5. Cunningham, Peter J., and Laurie E. Felland, Falling Behind: Americans' Access to Medical Care Deteriorates, 2003-2007, Tracking Report No. 19, Center for Studying Health System Change, Washington, D.C. (June 2008).

6. The association between the individual provider assistance measures and unmet needs was examined through OLS regressions for persons with medical bill problems. The dependent variable in these regressions was unmet medical need, with the individual provider assistance variables as independent variables. Other control variables in the regression include the amount of medical debt, age, gender, insured vs. uninsured, health status, chronic conditions, race/ethnicity, size of metropolitan area or nonmetro area, and census region. Regression-adjusted means were computed for the provider assistance measures.

7. Banthin, Cunningham and Bernard (January/February 2008).

8. Harbage, Peter, Len M. Nichols and Leif W. Haase, Lessons From California's Health Reform Efforts for the National Debate, New America Foundation, Washington, D.C. (March 2008).

9. May, Jessica H., et al., Most Uninsured People Unaware of Health Care Safety Net Providers, Issue Brief No. 90, Center for Studying Health System Change, Washington, D.C. (November 2004).

Data Source and Funding Acknowledgements

The data underlying this Tracking Report come from HSC's 2007 Health Tracking Household Survey and the 2003 Community Tracking Study Household Survey. Both are nationally representative telephone surveys of the U.S. population. The sample sizes include approximately 47,000 individuals for the 2003 survey and about 18,000 individuals for the 2007 survey. Response rates were 57 percent in 2003 and 43 percent in 2007. Population weights adjust for probability of selection and differences in nonresponse based on age, sex, race/ethnicity, and education. Questionnaire design and data collection methods were comparable across both survey waves. Information was collected on all adults in each family as well as a randomly selected child. Although both surveys are nationally representative, the 2003 sample was clustered in 60 representative communities, while the 2007 survey employed a stratified random sample of the nation. Standard errors account for the complex sample design of the surveys.

Both surveys posed the question, "During the past 12 months have you or your family had any problems paying medical bills?" This report adopts the perspective that medical bill problems are most appropriately examined at the family level because decisions regarding major expenses and finances — including medical care — are typically made within the family unit. This also implies that the adverse effects of medical bill problems within a family affect all household members, not solely the individual(s) who actually incurred the medical bills. For this reason, the response to the medical bill problems question — asked only once per family — is applied to all persons in the family. The estimates reflect the percentage of persons in families with medical bill problems.

Funding Acknowledgements: Support for this research was provided by The Commonwealth Fund. The survey data used for the analysis was sponsored by the Robert Wood Johnson Foundation.

Supplementary Tables

Supplementary Table 1: People in Families with Medical Bill Problems, 2003 and 2007, by Health Insurance Coverage

Supplementary Table 2: Access Problems for People with Medical Bill Problems (ages less than 65)

Supplementary Table 3: Advice and Assistance from Medical Providers in Response to Patients' Medical Bill Problems, 2007

TRACKING REPORTS are published by the Center for Studying Health System Change. 600 Maryland Avenue, SW, Suite 550, Washington, DC 20024-2512. Tel: (202) 484-5261. Fax: (202) 484-9258. President: Paul B. Ginsburg.

Sources and Further Reading

Commonwealth Fund: Seeing Red — Medical Bills and Debt — Companion research on the growing burden of medical bills and debt faced by U.S. families, directly cited in this study.

KFF: Health Costs and Consumer Financial Burden — Kaiser Family Foundation analysis of out-of-pocket spending, medical debt, and affordability barriers affecting American families.

Health Affairs: Financial Burden of Health Care, 2001-2004 — Peer-reviewed MEPS data analysis on rising financial burden of health care on families, cited in this tracking report.

U.S. Census Bureau: Health Insurance Coverage — Federal data on health insurance coverage rates and uninsured populations that underlie the access barriers documented here.

MEPS: Medical Expenditure Panel Survey — National data on health expenditures and out-of-pocket costs used to track the financial burden of medical bills on U.S. families.