Why Hospitals Want Patients to Pay Upfront

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by John Tozzi,

from Bloomberg Businessweek,

Some of the 17 million U.S. residents covered by high-deductible health plans are racking up medical debt.

Melody Rempe spends much of her day telling people who are about to go into the hospital how much they’ll have to pay. As a patient financial counselor at Nebraska Methodist Health System, she calls patients about a week before they go in for procedures with estimates of their bills and what portion insurance will cover.

Hospitals have good reason to be concerned about their patients’ finances: Even people with insurance are increasingly responsible for a big portion of their medical bills. Among Americans who get health coverage at work, 41 percent have deductibles of at least $1,000 they must meet before insurance starts paying. That’s up from 10 percent in 2006, according to the Kaiser Family Foundation. Those with employer coverage are joined by 7 million new enrollees in Obamacare plans, which typically make patients share a large chunk of costs. The average deductible in the most popular “silver” tier of coverage is $2,267, according to an analysis by the Robert Wood Johnson Foundation.

Raising deductibles helps employers and insurers limit premium hikes. It also shifts more of the risk onto individuals. That in turn boosts the chances that doctors and hospitals won’t get paid. If a patient has a $2,900 deductible, “it’s far more difficult to get that $2,900 from an individual patient than it is from the Medicare program or from Blue Cross Blue Shield,” says Richard Gundling, vice president of the Healthcare Financial Management Association, a trade group. A March report on hospitals from Moody’s (MCO), the credit-rating firm, was blunt: “Today’s high deductibles are tomorrow’s bad debt.”

Hospitals’ total cost of uncompensated care reached $46 billion in 2012, equal to about 6 percent of their expenses, the American Hospital Association says.

As the mechanics of insurance policies become more complicated, Americans are having a harder time understanding how their plan choices will affect their finances. Only 14 percent of insured adults correctly understand insurance jargon such as deductibles, coinsurance, copays, and out-of-pocket maximums, according to a 2013 study published in the Journal of Health Economics.

Many Americans aren’t prepared for a medical emergency. Dr. Marilyn Peitso, a pediatrician in St. Cloud, Minn., says parents often can’t afford $300 to $400 for antibiotics to treat an ear infection.

Many hospitals try to get patients to pay upfront 30 percent to 50 percent of what they’ll owe and some offer discounts for paying early, says Yaro Voloshin of health-care consultant MedAssets (MDAS). One reason is that they want to avoid the damage to their reputations that accompanies aggressive debt collection practices.

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