Difficult Trade-offs: Medical Debt, Household Finances, and Healthcare Access

Issue Brief No. 85
June 2004
Jessica H. May, Peter J. Cunningham

Approximately 20 million American households -- encompassing 43 million individuals -- reported difficulty paying medical bills in 2003, based on new research from the Center for Studying Health System Change (HSC). Although families without insurance are more likely to encounter medical bill difficulties, two-thirds of those struggling with medical debt actually have health coverage. Among all families experiencing medical bill problems, nearly two-thirds also reported hardship covering other essential expenses -- including rent, mortgage, transportation, or food -- as a consequence of their medical debt. People in families burdened by medical bills also had significantly more trouble obtaining care due to cost worries: one in three could not fill a prescription, one in four postponed care, and one in eight went without necessary treatment.

Families Facing Medical Bill Challenges

Many Americans find themselves unable to afford medical care, a challenge that may be intensifying due to rapidly escalating costs, growing ranks of uninsured individuals, increased cost sharing for those with coverage, and elevated levels of preexisting consumer debt. Close to half of all personal bankruptcies can be attributed in part to medical expenses.

New data from HSC's nationally representative 2003 Community Tracking Study (CTS) Household Survey reveal that many more Americans confront the less extreme but still significant effects of medical debt (see Data Source). When respondents were asked whether they or their families had experienced difficulty paying medical bills during the previous 12 months, roughly 20 million households -- about one in seven American families -- acknowledged such problems.

Elevated out-of-pocket medical spending, limited income, absence of health insurance, and insufficient coverage all contribute to difficulties paying medical bills. Around 35 percent of families with high out-of-pocket expenditures -- defined as $2,000 or more annually -- reported trouble with medical bills, compared with just 6.6 percent of families whose out-of-pocket medical costs were $250 or less.

Nevertheless, even relatively modest out-of-pocket medical expenses can create significant hardship for lower-income families, who are also more likely to lack insurance. Roughly one in five low-income households -- those earning below 200 percent of the federal poverty level, or $36,800 for a family of four in 2003 -- faced medical bill difficulties, versus 7.4 percent of families with incomes at or above 400 percent of poverty. And while about one-third of families overall fall below 200 percent of the poverty threshold, approximately half of all families with medical bill challenges are low income.

Insurance Coverage

As other research has demonstrated, having health insurance does not always shield a family from medical bill problems. Fully uninsured families -- where every member lacks coverage -- are roughly twice as likely to report medical bill difficulties as insured families (23.7% versus 11.4%). Yet insured families -- where all members have coverage -- account for the majority (68%) of families experiencing medical bill issues. Even with insurance, many families encounter higher out-of-pocket costs because of climbing deductibles, copayments, and coinsurance requirements where patients bear a percentage of the total charge.

Among insured families, the frequency of medical bill problems differs by coverage type. Elderly households covered by Medicare were less prone to report medical bill difficulties than nonelderly insured families -- those where the family head was under 65. Older adults may assign a higher priority to medical spending and may face fewer trade-offs with other expenses compared with families raising young children.

Among nonelderly households, those with private insurance were less likely than publicly insured families to report payment difficulties, largely because privately insured families tend to earn more and have fewer health conditions. Still, 17.2 percent of publicly insured nonelderly families reported medical bill problems -- a notably high figure given that most are enrolled in Medicaid or other state programs with minimal or no cost sharing. However, many families with public coverage have substantial medical needs and limited resources, so even small out-of-pocket expenses can quickly strain their finances. Additionally, Medicaid and other public program enrollees are increasingly subject to copayments and restrictions on services like prescription medications.

Elevated Medical Needs

Families whose members need more frequent care and utilize hospital services at higher rates are more likely to report trouble paying medical bills. Households with a member in fair or poor health, or someone with at least one chronic illness, experienced greater medical bill difficulties -- likely reflecting the frequent utilization and steep costs associated with caring for a sick family member. Indeed, about a quarter of families with a member who had been hospitalized in the prior year reported medical bill problems, as did roughly one-fourth of families with a visit to a hospital emergency department.

Effects on Household Finances

Families dealing with medical bill problems are highly likely to suffer negative financial consequences. Among all families with medical bill challenges, 63.1 percent reported difficulty covering other basic needs -- such as rent, mortgage, transportation, or food -- because of their medical obligations. Over 60 percent of affected families also reported being contacted by a collection agency, and approximately half reported delaying a major purchase or taking on additional debt. Nearly all families with medical bill problems (94%) experienced at least one of these adverse financial effects, and close to a quarter faced all four negative outcomes. Insured and uninsured families reported comparable effects on their finances, although insured families were considerably more likely to report contact from a collection agency.

Medical Debt Impedes Access to Care

Individuals in families grappling with medical bill problems also face considerably greater difficulty obtaining medical care. They were four times more likely to report postponing care during the past year due to cost concerns and five times more likely to report an unmet medical need because of expense, compared with people in families without such problems.

Furthermore, more than 30 percent of those in families with bill difficulties reported forgoing prescription medications because of cost, versus 7 percent of individuals in families without such problems. For households carrying existing medical debt, constrained resources, the anxiety of accumulating further bills, and some providers' reluctance to treat patients with outstanding balances may compel many to delay or skip necessary care due to out-of-pocket expenses.

Disparities in care access are not solely attributable to lower insurance rates among families with medical bill problems. While uninsured individuals overall are more prone to difficulty accessing care, insured people in families with bill problems also face far greater barriers to care than insured persons in families without such issues. For instance, over one-quarter of insured individuals (27.1%) in families with medical bill problems reported not obtaining needed prescription medications, compared with 5.4 percent in families without medical bill difficulties.

Nonetheless, medical bill problems take the heaviest toll on the uninsured, with nearly half of uninsured individuals in families struggling with medical debt reporting they did not receive needed prescription drugs.

Implications

While it is widely understood that steep medical costs can create severe financial consequences for uninsured individuals, there has been less recognition that high out-of-pocket medical expenses can also cause significant financial strain for insured families.

Policy makers have largely focused on the impact of rising health insurance premiums on insured individuals' ability to maintain coverage. However, these findings demonstrate that high out-of-pocket costs also impose a considerable financial burden on many insured people and families. Moreover, these expenses frequently reach a level severe enough to harm household finances and limit access to care.

The number of American families facing medical bill difficulties is likely to grow. Beyond the long-term rise in uninsured Americans, many employers are shifting greater health costs to workers. Additionally, while Medicaid has historically provided broad coverage with little or no cost sharing, many states are scaling back benefits, capping utilization (such as limiting monthly prescriptions), and introducing copayments to rein in escalating costs.

Along with the rise of consumer-driven health plans and efforts by some states to relax mandated benefit requirements, both privately and publicly insured individuals will likely face growing out-of-pocket medical expenses. The finding that medical bill difficulties for insured families are serious enough to impair household finances and hinder care access may limit the attractiveness of certain consumer-driven approaches, including the new health savings accounts (HSAs) enacted as part of the 2003 Medicare reform law. By offering a tax-advantaged vehicle for saving and withdrawing funds for medical expenses, HSAs are designed to encourage enrollment in high-deductible health plans -- with minimum deductibles of at least $1,000 for individuals and $2,000 for families. Yet given that so many insured families already struggle with out-of-pocket costs, HSAs may primarily appeal to higher-income families who have both greater resources and a stronger tax incentive to contribute. HSAs may offer limited relief to moderate-income families with medical debt, unless their employers fund the accounts substantially.

Another objective of consumer-driven initiatives is to curtail unnecessary service use by making consumers more cost-aware when seeking medical care. However, for individuals with low or moderate incomes, or those with high medical needs, even prudent choices regarding medical care could leave many families with substantial unpaid medical debt, resulting in both financial hardship and unmet health needs. Consumer-driven health plans -- such as HSAs -- may need to be adjusted to achieve a more suitable balance between incentives for efficient healthcare use and financial protection for lower-income families.

Data Source

This Issue Brief presents findings from HSC's Community Tracking Study (CTS) Household Survey, a nationally representative telephone survey of the civilian, noninstitutionalized population. The survey was fielded between March and October of 2003 and includes responses from approximately 46,600 people (representing about 25,400 families). The response rate was 57 percent. The survey gathers detailed information on health insurance, medical care use, health status, and individuals' and families' experiences with health care access.

Sources and Further Reading

Kaiser Family Foundation — Medical Debt Among Insured Americans — KFF data and analysis on the prevalence and financial impact of medical debt, including among families with health insurance coverage.

Commonwealth Fund — How the Cost of Medical Care Threatens American Families — Research on the growing burden of out-of-pocket medical costs on household finances, including the role of insurance gaps and high deductibles.

U.S. Census Bureau — Health Insurance Coverage Definitions and Data — Federal definitions and data on health insurance coverage types and poverty thresholds referenced throughout this research.

Health Affairs — Medical Bills and Family Finances — Peer-reviewed studies on the relationship between medical debt, personal bankruptcy, and household financial hardship.

Robert Wood Johnson Foundation — HSC Research on Medical Debt — RWJF-funded HSC research examining how medical bill problems affect household finances and access to care for insured and uninsured families.