The combined forces of inflation, rising medical costs, and higher out-of-pocket insurance costs are creating unsustainable financial stress for commercially insured Americans. Left unchecked, these challenging trends are causing Americans on tight budgets to make tough choices, often resulting in patients delaying or skipping needed care altogether.
According to new studies, healthcare costs driven by medical inflation are expected to reach record increases in the coming year, jumping from 5.4% to 8.5%. (1) At the same time, rising deductibles and out-of-pocket (OOP) healthcare costs, and unexpected medical expenses are reaching crisis levels for a growing number of families with health coverage. For example, out-of-pocket spending is expected to have grown by 4.4% per capita in 2023. Add on the inflationary prices of everyday goods and services, and there’s simply not enough money to go around for American families.
Many healthcare providers have reluctantly taken on more of a direct healthcare financing role for patients in response or are requiring up-front payment. Some are enrolling financially stressed patients in credit products that only exacerbate their financial stress by accruing more interest and fees. Others are requiring pre-payment for services. But many patients lack the cash or credit to pay for it – often resulting in delays in medical treatment, or avoiding necessary care altogether. It is disconcerting pattern that is compounding future financial, medical, and personal costs.
It is not just a small subset of American families who are financially stressed. More than half of Americans (53%) now say they are challenged to pay an unexpected medical bill above $1,000 ($600 for those who are younger or have lower credit scores), according to a recent Healthcare Payments and Financial Disparities Study. Nearly a third of Americans (30%) have been forced to drain from their savings accounts to pay their providers.
The quiet crisis
While the problem has reached critical levels, healthcare affordability for insured Americans has been eroding quietly and steadily for years. Employers struggled with skyrocketing insurance premiums year over year. Raising OOP amounts became the easiest way to slow premium increases. Hence, a growing number of commercially insured patients have become saddled with much higher OOP costs over time.
Employers were able to lower premiums for their healthy employees, but it resulted in a significantly increased financial burden on employees in need of care in the form of higher deductibles and co-insurance. This OOP lever was often seen as the only method of slowing uncontrollable premium hikes. The runaway OOP lever has outpaced worker wages and yielded premium contributions and deductibles equating to 11.6% of median income in 2020, up from 9.1% in 2010, according to the Commonwealth Fund. (2)
As insured Americans took on more of the cost burden, providers deployed more financing tools to address it. Upfront collections, deposits, reminder calls, call centers, robocalls, text messages, online patient portals, and reams of letters and statements are now the norm. These collection tactics create unwanted tension, alienating the patient. The sizeable OOP plan designs now drive patients to make imprudent medical decisions such as delaying necessary care due to cost burdens which often raises future treatment costs.
A new model is needed
While inflation and OOP healthcare payments are a serious problem for patients, as well as a serious collection issue for providers, there is a way forward to improve affordability and access to healthcare.
New payment models are being introduced bridging patient payment gaps by ensuring providers get paid upfront while easing the billing experience for patients. They are based on a foundation of a third-party service guaranteeing prompt full payments to providers in exchange for giving consumers more affordable repayment plans without the insidious additional fees. The model shifts the financial relationship away from providers to specialized services that remove the system’s inefficiencies and streamline the payment process for all involved. They pay the patient invoice to the provider upfront and then assume the extended payment relationship with the patient.
Some models provide credit for OOP costs at low to no interest and construct a payment schedule that fits the person’s needs, regardless of their credit history. Insured Americans with high deductible and co-pay plans benefit by gaining manageable repayment plans for all allowed in-network charges up to their OOP maximum amount. Most importantly, they guarantee payment to providers and credit to all patients, regardless of their credit record, which helps address health equity and access for vulnerable populations.
The new payment models also help eliminate the confusion surrounding billing. Instead of experiencing a pile of statements and notices, consumers get a single, simple, consolidated statement summarizing the totality of their care, regardless of where they received the care. Patients become better informed, more in control of their medical expenses and more engaged with their provider. This credit-to-all approach ensures patients can make prudent decisions about their medical care – receiving services when they need them instead of when they feel they can afford them.
The combined stress of medical inflation and rising OOP costs has reached critical mass for insured Americans, impacting their physical, emotional and financial well-being. Providers can help their financially challenged patients by leveraging alternative, patient-friendly financing models that will ensure they no longer delay or avoid the medical care they need.
1.) Mercer, Aon and Willis Towers Watson study, Sept. 2023
2.) State Trends in Employer Premiums and Deductibles, 2010–2020 Commonwealth Fund, Jan. 2022
Jonathan Moss, MBA, FHFMA has been working in the healthcare industry for three decades. A majority of his career has been devoted to bridging the widening chasm of “financial experience” between providers and patients. After working for 20 years in revenue cycle for a non-profit health system, Jonathan has joined PayMedix as VP of Consumer Financial Engagement addressing this ecosystem with a truly innovative and more equitable solution. He is a Fellow in the Healthcare Financial Management Association where his home chapter is Massachusetts-Rhode Island.