Table of Contents:

1. Why Does Medical Debt Persist Despite Health Insurance?

2. The History of Healthcare Costs: How Did We Get Here?

3. The Shift in Healthcare: Why is This Happening?

4. How Can Patients Avoid Medical Debt

5. What to Look for When Choosing Health Insurance

6. Conclusion: Preventing Medical Debt is Within Your Control

7. FAQ

Why Does Medical Debt Persist Despite Health Insurance?

A recent study by RFF Polling showed that 90% of Americans have access to health insurance, but medical debt continues to plague millions. According to Gallup, 12% of adults, or around 3 million people, borrowed over $74 billion in 2024 to cover medical expenses. This statistic clearly signals a gap in healthcare coverage and understanding. (Source1) (Source2) 

Why is this happening? 

The issue lies in the unexpected costs that even insured patients face. Once patients receive medical treatment, they are often shocked to find that only part of their bill is covered, or worse, certain procedures are excluded from their insurance plans. This leaves them to shoulder the remaining costs, often by borrowing money, especially those with chronic conditions requiring regular treatments.

For instance, patients undergoing treatment for cancer, diabetes, or thalassemia are frequently hit with significant out-of-pocket expenses. Women who require pregnancy care and those receiving gender-affirming treatments also face the same issue. In fact, 41% of adults in the U.S. have either borrowed from family or friends or taken loans from banks to pay medical bills. Clearly, there’s an urgent need to address these gaps.

The SIPP survey suggests that people in the United States owe at least $220 billion in medical debt. Approximately 14 million people (6% of adults) owe more than $1,000 in medical debt, and about 3 million people (1% of adults) owe medical debt exceeding $10,000. While medical debt occurs across demographic groups, people with disabilities or in worse health, and lower-income individuals, are more likely to have significant medical debt.

The History of Healthcare Costs: How Did We Get Here?

Healthcare costs in the U.S. have surged over the decades, driven by advancements in medical technology, rising service costs, and evolving policy efforts. The journey began in the early 20th century when health insurance was first endorsed by Teddy Roosevelt's Progressive Party, but it wasn't until the 1920s that Baylor Hospital introduced the prepaid insurance model, which later evolved into Blue Cross plans. Despite efforts during the Great Depression and post-war era to introduce universal healthcare, it wasn’t until the 1960s that Medicare and Medicaid were established under President Lyndon B. Johnson, expanding healthcare access to the elderly and low-income populations. However, even with these reforms, rising premiums, out-of-pocket expenses, and underinsurance remained persistent challenges for millions of Americans.

The 2000s marked a significant turning point with the Affordable Care Act (ACA) of 2010, which sought to reduce the number of uninsured Americans and make healthcare more affordable through expanded Medicaid and insurance marketplaces. While the ACA succeeded in expanding coverage, it has not addressed the underlying issue of escalating healthcare costs. Today, even insured Americans are facing crippling medical debt, underscoring the systemic issues within the U.S. healthcare system. Despite various reforms, the ongoing rise in premiums, out-of-pocket costs, and gaps in coverage continue to challenge individuals, highlighting the urgent need for further policy changes to make healthcare more affordable and protect Americans from falling deeper into debt. (Source)

The Shift in Healthcare: Why Is This Happening?

The healthcare system has undergone significant shifts in recent years, largely due to the COVID-19 pandemic. The challenges from 2020 to 2021 exposed vulnerabilities within the system, such as supply chain disruptions, worker shortages, and rising costs, affecting both providers and patients. However, the pandemic also accelerated telemedicine adoption and AI-driven solutions, spurring innovation in care delivery models and improving patient access to services.

Looking ahead, while healthcare systems are recovering, the financial strain on providers and patients remains. 

Challenges Contributing to Healthcare Debt:

• Rising Out-of-Pocket Costs and Inadequate Insurance Coverage
  Post pandemic, even with insurance, high deductibles, co-pays, and coinsurance leave many individuals paying large portions of their medical bills on their own. Rising insurance premiums make basic coverage hard to afford, and "underinsurance" leaves people with big bills because their current insurance doesn’t cover everything.

• Loss of Employer-Based Insurance and Coverage Gaps
  During the pandemic, millions lost their jobs and, consequently, their employer-provided health coverage. Many have struggled to regain adequate coverage, with some still facing insurance gaps, especially as the economy recovers. These gaps have left them vulnerable to unexpected medical costs and growing debt.

• Increased Healthcare Service Costs and Medical Inflation
  Post-Covid, medical costs for services, treatments, and prescription drugs have risen sharply, outpacing both wage growth and inflation. Hospital care, specialized treatments, and essential medications have become significantly more expensive, adding to the financial strain on individuals and families already facing other economic challenges.

• Delayed or Deferred Care Leading to Higher Bills
  Many people postponed or skipped medical care during the pandemic, causing health issues to worsen. Now, they need more expensive treatments to address problems that could have been managed earlier. This delayed care has led to higher medical bills, especially for those with chronic conditions.

• Unpredictable Medical Events and Long COVID
  Unexpected medical events, injuries, or illnesses, including complications from Long COVID, have led to unplanned high medical costs. Even individuals who once believed they were adequately insured have found themselves financially overwhelmed by ongoing treatment costs.

• Expiry of COVID-Era Relief and Subsidies
  During the pandemic, many received extra subsidies and better access to Medicaid and insurance. With these relief measures ending and the Medicaid recent crisis, more people are now facing higher healthcare costs, leading to more medical debt.

These challenges have created instability in the healthcare system, which impacts both providers and patients. The cost of care has risen, making it harder for insured patients to manage their medical bills.

How Can Patients Avoid Medical Debt

While the healthcare system continues to face challenges, McKinsey reports that despite ongoing inflationary pressures, there is optimism driven by recovery in profitability and the potential to scale innovations that emerged during the pandemic. To navigate the evolving landscape, healthcare providers must continue embracing innovative technologies to meet growing patient needs while maintaining financial sustainability. Here are actionable steps patients can take to prevent medical debt:

1. Prioritize Preventive Care: Investing in preventive care is one of the most effective ways to avoid medical debt. Maintaining a healthy lifestyle through exercise, a balanced diet, and stress management helps reduce the risk of chronic diseases, which often lead to expensive treatments and long-term care costs.
   
   

2. Choose the Right Health Insurance: Selecting a health insurance plan that meets your needs is critical. Ensure it covers a wide range of services such as hospital stays, prescriptions, and specialized care. Understanding your plan's details, including deductibles, co-pays, and out-of-network costs, can prevent unexpected medical expenses.
   
   

3. Understand Your Coverage: Many people are unaware of the full extent of their coverage until a bill arrives. Be sure to read your policy thoroughly, knowing exactly what is covered and any exclusions. Understanding your plan’s out-of-pocket maximums can help you avoid surprises when it’s time to pay your medical bills.
   
   

4. Choose In-Network Providers: In-network providers are generally much cheaper than out-of-network ones. Always verify that your healthcare provider is in-network to avoid unnecessary additional costs, ensuring your insurance covers a larger portion of the bill.
   
   

5. Review and Negotiate Your Bills: Always review your medical bills for errors and inaccuracies. Many providers are open to negotiation, especially if you're facing financial hardship. Don’t hesitate to ask for a discount, a payment plan, or a lower rate.
   
   

6. Explore Financial Assistance Programs: If you’re struggling with medical bills, inquire about any financial assistance programs offered by your healthcare provider. Many hospitals and clinics offer sliding scale fees or payment options based on your income.
   
   

7. Open a Health Savings Account (HSA): If you have a high-deductible health plan (HDHP), consider opening an HSA. This account lets you save tax-free money for medical expenses, acting as a financial buffer against unexpected costs, and reducing out-of-pocket spending.
   
   

8. Consider Debt Management Plans: If you’re dealing with multiple medical debts, consolidating them or using a debt management plan could simplify repayments. This may help reduce your interest rates and make paying off your debts more manageable.
   
   

9. Don’t Ignore Medical Bills: Ignoring medical bills can lead to late fees, increased debt, and damage to your credit. If you're unable to pay immediately, contact the provider and discuss payment options or negotiate a payment plan. Early communication can prevent the situation from worsening.

By taking these steps, patients can protect themselves from medical debt and ensure they are making informed decisions about their healthcare expenses.

What to Look for When Choosing Health Insurance

Choosing the right health insurance plan is a crucial decision that can significantly impact your financial stability and access to healthcare. Here are the key factors you should consider to ensure you select the best plan for your needs:

1. Comprehensive Coverage

When selecting a health insurance plan, make sure it offers more than just basic care. A well-rounded plan should cover essential services such as hospital stays, surgeries, doctor visits, chronic condition management, mental health services, and rehabilitation. Additionally, specialized care like cancer treatment, physical therapy, and post-acute care should be included to ensure complete protection, minimizing unexpected out-of-pocket costs when serious health issues arise.

2. The Metal Categories: Bronze, Silver, Gold, and Platinum

Health insurance plans are categorized into "metal" tiers based on how costs are shared between you and the insurer. The categories, Bronze, Silver, Gold, and Platinum, differ in how much you pay for premiums versus out-of-pocket expenses. Bronze plans typically have lower premiums but higher out-of-pocket costs when you need care. Platinum plans, on the other hand, come with higher premiums but lower out-of-pocket costs. Silver and Gold plans fall in between. Choosing the right category depends on your healthcare needs and whether you're willing to pay higher premiums for lower out-of-pocket costs or prefer to manage higher costs when seeking care.

3. Plan and Network Types: HMO, PPO, POS, and EPO

Health insurance plans also come in various types, including Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Point of Service (POS), and Exclusive Provider Organizations (EPOs). Each type determines your access to healthcare providers and how much flexibility you have. HMOs require you to stay within a specific network and get referrals from a primary care physician. PPOs offer more flexibility by allowing out-of-network care, but they come with higher premiums. POS and EPO plans combine elements of both HMO and PPO plans, with EPOs having more restrictive provider choices. Evaluate your need for flexibility in accessing healthcare providers when deciding on the best plan for your needs.

4. Rehabilitation and Post-Acute Care Limits

Many health insurance plans impose limits on how much coverage is provided for rehabilitation services such as physical therapy, skilled nursing, and post-acute care. These limits can be financially devastating, particularly if you need extensive rehabilitation after major surgery or illness. Be sure to check the specific coverage for rehabilitation and post-acute care, including any limits on the number of days or sessions covered.

5. Step Therapy ("Fail First") Rules

Step therapy, also known as "fail first" protocols, is a cost-containment strategy where insurers require patients to try and fail on lower-cost treatments before covering more expensive or specialized therapies. While this approach helps control costs, it can delay access to necessary treatments, particularly for patients with chronic or complex conditions. If your plan includes step therapy, it's important to understand how it may affect your access to the appropriate care. Be sure to familiarize yourself with the appeals process to expedite access to the treatments you need if the policy delays your care.

6. Lifetime/Annual Maximum Loopholes

While the Affordable Care Act (ACA) prohibits overall lifetime and annual limits on essential health benefits, some “excepted benefits” such as dental, vision, or short-term insurance still have strict caps. These limits can leave you with significant out-of-pocket expenses for services that fall outside the main coverage. Review any maximums or exclusions for these types of benefits to ensure you’re fully covered without unexpected financial strain.

7. Prescription Drug Coverage

Prescription drug coverage is essential, particularly if you take ongoing medications. Check the plan’s formulary to ensure your medications are covered, including both generics and brand-name drugs. It's important to evaluate the co-pays for your medications and consider whether the plan offers mail-order prescriptions, which can provide convenience and cost savings, especially for long-term treatments.

Conclusion: Preventing Medical Debt is Within Your Control

Despite having health insurance, many Americans still face medical debt due to unexpected costs, high premiums, and gaps in coverage. By focusing on preventive care, understanding insurance details, and negotiating bills, patients can manage healthcare costs and avoid debt. For healthcare providers, offering transparent communication, flexible payment options, and empathetic customer service is crucial in reducing patient financial strain. 

FAQs

Why does medical debt persist despite having health insurance?

Many insured patients face unexpected costs like high deductibles, out-of-network charges, or non-covered treatments, often due to a lack of understanding of their policy.

What can patients do to avoid medical debt?

Patients should prioritize preventive care, understand their insurance, verify in-network providers, and review bills for errors. Negotiating payments and seeking financial assistance can also help manage costs.

How does FinanceOps help healthcare providers prevent medical debt?

FinanceOps automates collections using AI, ensuring efficient debt recovery while maintaining a personalized, empathetic approach to improve patient satisfaction.

Can FinanceOps integrate with existing healthcare systems?

Yes, FinanceOps seamlessly integrates with existing healthcare systems, optimizing and automating collections processes while ensuring everything is fully-compliant.