The Consumer Financial Protection Bureau (CFPB), the body that enforces regulations related to consumer finance, recently released a report comparing medical and non-medical debt collections. It suggests that consumers with medical debt owe less money and are more capable of meeting financial obligations than their counterparts with non-medical debt, and that confusion about how and who to pay may be contributing significantly to the problem.

How serious is the medical debt problem?

Of America’s 220 million credit reports, 31.6 percent, roughly 69 million, are in collections. Approximately 43 million of those contain one or more medical collections tradelines. Medical debts, outstanding bills owed to hospitals and other medical providers, make up 52.1 percent of all collections tradelines.

What is different about medical debt?

Consumers with medical debt generally owe less money, are less likely to show other evidence of financial distress, and are more likely to pay back debts than consumers with non-medical debt. Tradelines originating from medical debt are markedly smaller than other tradelines, suggesting that it may be easier for consumers to pay back medical debt compared to other debt. According to the report, the median and average sizes of medical collections tradelines, $207 and $579 respectively, are significantly lower than the median ($366) and average ($1000) sizes of non-medical collections tradelines. About 75 percent of all medical collections are less than $490.

A large portion of consumers with medical debt show no other evidence of financial distress and are consumers who ordinarily pay their other financial obligations on time. (p.7)

Consumers with medical debt are also more likely to be in a position to pay their debts than consumers with non-medical debt, and are as likely to pay future obligations as consumers with credit scores at least ten points higher. The CFPB found that 50 percent of those consumers with medical debt “have otherwise ‘clean’ credit reports with no indication of serious past delinquencies.” Consumers with medical debt “owe less, have more available credit which they could use to repay their debt, and are more reliable payers than consumers with non-medical collections tradelines or than consumers with both types of collections tradelines.”(p.7)

Why is medical debt so common if consumers appear more capable of paying it when compared with other kinds of debt?

Medical billing is uniquely complex in the United States. The cost of medical services is often unknown to both the consumer and the healthcare provider until those services are coded for, submitted to, and approved by the consumer’s insurance carrier. The share of the cost for which the consumer is responsible also varies widely by insurance company and plan. Many procedures often involve two or more providers, which each bill separately and often at different times, adding to consumer confusion.

Lack of clarity about how much is owed to whom may play a significant role in medical bills being sent to collections in the first place.

The report’s review of complaints filed with the CFPB indicated that consumers with medical debt were more likely to be confused about what, how much, and to whom they owe than consumers with non-medical debt: “Consumers identifying as having medical debt were more than twice as likely to claim ‘the debt was paid’” compared to consumers with non-medical debt. Consumers with medical debt were also more likely to claim that they “were not given enough information to verify [the] debt,” or that the collector was “attempting to collect the wrong amount.” (p.43)

Medical bills can be a cause of confusion and uncertainty and can result in collections tradelines for consumers who are uncertain about what they owe, to whom, when, or for what. (p.6)

Among the factors the report highlighted as contributing factors to confusion about medical bills were: the combination of multiple procedures and multiple providers for whom the billing process may be different (p.41); the fact that consumers often do not know the cost of care in advance (p.39); and the challenge determining if a provider is in or out of network (p.40).

How can we reduce medical debt?

The CFPB’s emphasis on the contribution of consumer confusion to the high volume of medical debt suggests that overhauling the way consumers receive and pay their medical bills could dramatically reduce the frequency with which those bills go to collections. Unifying all of a patient’s bills so that they may be viewed and paid in one place—online or via a single monthly bill—would be a great start.

The CFPB report does not, however, consider the degree to which healthcare providers struggle to collect payment at the point of service, and how that contributes to the creation of medical debt. The likelihood of a patient paying his or her bill drops by 50 percent as soon as that patient leaves the doctor’s office, but the structure of the healthcare industry makes it almost impossible to charge patients at the point of service.

At EveryBill, we are developing ways to significantly increase the amount healthcare providers can collect at the point of service, simplify the payment experience for patients, and ultimately improve cost clarity in healthcare markets. The technical design of our system is fairly simple and inexpensive, at least when compared with the major information technology projects many healthcare systems are undertaking, and could be implemented without many of the disruptions large companies expect from new software.