After COVID fears and shutdowns led consumers to delay care early in the pandemic, persistently high inflation over the past year has further suppressed volumes.
As the graphic above illustrates, the average deductible for individual coverage has grown by over 140 percent since 2010, exposing consumers to an increasing portion of healthcare costs, and prompting economists to reevaluate the adage that healthcare is “recession-proof”.
This year, that trend collided with an inflation spike that outpaced wage gains by two percent. Faced with diminished purchasing power, households are making budget tradeoffs which explicitly pit healthcare against other essential household needs.
For some, this cost-cutting impulse even extends to preventative screenings—required to be covered without cost-sharing—when consumers’ financial concerns drive them to avoid healthcare altogether.
While the latest inflation report suggests price increases are moderating, fears of a broader recession persist, making it critical for health systems and physicians to communicate with patients, encouraging them to continue to access preventive care, educating them about lower cost care options, and helping them prioritize treatment that should not be put off.
The majority of hospitals are predicted to have negative margins in 2022, marking the worst year financially for hospitals since the beginning of the Covid-19 pandemic.
In Part 1 of Radio Advisory’s Hospital of the Future series, host Rachel (Rae) Woods invites Advisory Board experts Monica Westhead, Colin Gelbaugh, and Aaron Mauck to discuss why factors like workforce shortages, post-acute financial instability, and growing competition are contributing to this troubling financial landscape and how hospitals are tackling these problems.
As we emerge from the global pandemic, health care is restructuring. What decisions should you be making, and what do you need to know to make them? Explore the state of the health care industry and its outlook for next year by visiting advisory.com/HealthCare2023.
2022 has disproven the old trope that “healthcare is recession-proof”. With the average family deductible nearing $4,000, a significant portion of healthcare services are exposed to consumer concerns about affordability. Reflecting the impact of the recession, health systems nationwide have reported sluggish volumes, particularly for elective cases, in the second half of the year.
One COO recently shared, “We’re 15 percent off where we expected to be on elective cases…We didn’t see the usual pick-up in early fall, after summer vacation. I’m not sure if it’s related to the economy, or whether demand changed during COVID, but this decline has eroded any possibility of a positive margin for the quarter.” The recession hit just as providers mostly finished working through the backlog of cases delayed by COVID in 2020 and 2021.
To determine whether demand declines are related to the current economic environment, or signal real shifts in care patterns, health systems are looking closely to see if the usual end-of-year swell of demand for elective care materializes, as patients max out their deductibles. But even if the demand is there, some systems are worried about being able to accommodate it: “We’ve been so short-staffed for nurses and surgical techs, we’ve had to intermittently take some ORs and units offline…If we get a big December spike in elective care, I’m not sure we’ll have the staff to accommodate it.” Facing the triple threat of sky-high costs, sluggish demand, and a worsening payer environment, the ability to accommodate this demand will be critical to securing margins as providers move into 2023.
Driven by the steady progress of Medicaid expansion and pandemic-era policies to ensure access to health insurance coverage, the US uninsured rate hit an all-time low of 8 percent in early 2022. Since the Affordable Care Act passed in 2010, the US uninsured rate has been cut in half, with the largest gains coming from Medicaid expansion.
However, using data from Commonwealth Fund, the graphic below illustrates how this noteworthy achievement is undermined by widespread underinsurance, defined as coverage that fails to protect enrollees from significant healthcare cost burdens. A recent survey of working-age adults found that eleven percent of Americans experienced a coverage gap during the year, and nearly a quarter had continuous insurance, but with inadequate coverage.
High deductibles are a key driver of underinsurance, with average deductibles for employer-sponsored plans around $2,000 for individuals and $4,000 for families.
Roughly half of Americans are unable to afford a $1,000 unexpected medical bill. Americans’ healthcare affordability challenges will surely worsen once the federal COVID public health emergency ends, because between 5M and 14M Medicaid recipients could lose coverage once the federal government ends the program that has guaranteed continuous Medicaid eligibility.
The process of eligibility redeterminations is sure to be messy—while some Medicaid recipients will be able to turn to other coverage options, the ranks of uninsured and underinsured are likely to swell.
Patients at North Carolina-based Atrium Health get what looks like an enticing pitch when they go to the nonprofit hospital system’s website: a payment plan from lender AccessOne. The plans offer “easy ways to make monthly payments” on medical bills, the website says. You don’t need good credit to get a loan. Everyone is approved. Nothing is reported to credit agencies.
In Minnesota, Allina Health encourages its patients to sign up for an account with MedCredit Financial Services to “consolidate your health expenses.” In Southern California, Chino Valley Medical Center, part of the Prime Healthcare chain, touts “promotional financing options with the CareCredit credit card to help you get the care you need, when you need it.”
As Americans are overwhelmed with medical bills, patient financing is now a multibillion-dollar business, with private equity and big banks lined up to cash in when patients and their families can’t pay for care. By one estimate from research firm IBISWorld, profit margins top 29% in the patient financing industry, seven times what is considered a solid hospital margin.
Hospitals and other providers, which historically put their patients in interest-free payment plans, have welcomed the financing, signing contracts with lenders and enrolling patients in financing plans with rosy promises about convenient bills and easy payments.
For patients, the payment plans often mean something more ominous: yet more debt.
Millions of people are paying interest on these plans, on top of what they owe for medical or dental care, an investigation by KHN and NPR shows. Even with lower rates than a traditional credit card, the interest can add hundreds, even thousands of dollars to medical bills and ratchet up financial strains when patients are most vulnerable.
Robin Milcowitz, a Florida woman who found herself enrolled in an AccessOne loan at a Tampa hospital in 2018 after having a hysterectomy for ovarian cancer, said she was appalled by the financing arrangements.
“Hospitals have found yet another way to monetize our illnesses and our need for medical help,” said Milcowitz, a graphic designer. She was charged 11.5% interest — almost three times what she paid for a separate bank loan. “It’s immoral,” she said.
MedCredit’s loans to Allina patients come with 8% interest. Patients enrolled in a CareCredit card from Synchrony, the nation’s leading medical lender, face a nearly 27% interest rate if they fail to pay off their loan during a zero-interest promotional period. The high rate hits about 1 in 5 borrowers, according to the company.
For many patients, financing arrangements can be confusing, resulting in missed payments or higher interest rates than they anticipated. The loans can also deepen inequalities. Lower-income patients without the means to make large monthly payments can face higher interest rates, while wealthier patients able to shoulder bigger monthly bills can secure lower rates.
More fundamentally, pushing people into loans that threaten their financial health runs against medical providers’ first obligation to not harm their patients, said patient advocate Mark Rukavina, program director at the nonprofit Community Catalyst.
“We’re dealing with sick people, scared people, vulnerable people,” Rukavina said. “Dangling a financial services product in front of them when they’re concerned about their care doesn’t seem appropriate.”
Debt upon debt for patients, as finance firms get a cut of payments
Nationwide, about 50 million people — or 1 in 5 adults — are on a financing plan to pay off a medical or dental bill, according to a KFF poll conducted for this project. About a quarter of those borrowers are paying interest, the poll found.
Increasingly, those interest payments are going to financing companies that promise hospitals they will collect more of their medical bills in exchange for a cut.
Hospital officials defend these arrangements, citing the need to offset the cost of offering financing options to patients. Alan Wolf, a spokesperson for the University of North Carolina’s hospital system, said that the system, which reported $5.8 billion in patient revenue last year, had a “responsibility to remain financially stable to assure we can provide care to all regardless of ability to pay.” UNC Health, as it is known, has contracted since 2019 with AccessOne, a private equity-backed company that finances loans for scores of hospital systems across the country.
This partnership has had a substantial impact on patient debt, according to a KHN analysis of billing and contracting records obtained through public records requests.
Most patients in 2019 were in no-interest payment plans
UNC Health, which as a public university system touts its commitment “to serve the people of North Carolina,” had long offered payment plans without interest. And when AccessOne took over the loans in September 2019, most patients were in no-interest plans.
That has steadily shifted as new patients enrolled in one of AccessOne’s plans, several of which have variable interest rates that now charge 13%.
In February 2020, records show, just 9% of UNC patients in an AccessOne plan were in a loan with the highest interest rate. Two years later, 46% were in such a plan. Overall, at any given time more than 100,000 UNC Health patients finance through AccessOne.
The interest can pile on debt. Someone with a $7,000 hospital bill, for example, who enrolls in a five-year financing plan at 13% interest will pay at least $2,500 more to settle that debt.
How a short-term solution ‘leads to longer-term problems’
Rukavina, the patient advocate, said adding this burden on patients makes little sense when medical debt is already creating so much hardship. “It may seem like a short-term solution, but it leads to longer-term problems,” he said. Health care debt has forced millions of Americans to cut back on food, give up their homes, and make other sacrifices, KHN found.
UNC Health disavowed responsibility for the additional debt, saying patients signed up for the higher-interest loans. “Any payment plans above zero-interest terms/conditions in place with AccessOne are in place at the request of the patient,” Wolf said in an email. UNC Health would only provide answers to written questions.
UNC Health’s patients aren’t the only ones getting routed into financing plans that require substantial interest payments.
At Atrium Health, a nonprofit system with roots as Charlotte’s public hospital that reported more than $7.5 billion in revenues last year, as many as half of patients enrolled in an AccessOne loan were in one of the company’s highest-interest plans, according to 2021 billing records analyzed by KHN.
At AU Health, Georgia’s main public university hospital system, billing records obtained by KHN show that two-thirds of patients on an AccessOne plan were paying the highest interest rate as of January.
A finance firm calls such loans ’empathetic patient financing’
AccessOne chief executive Mark Spinner, who in an interview called his firm a “compassionate, empathetic patient financing company,” said the range of interest rates gives patients and medical systems valuable options. “By offering AccessOne, you’re creating a much safer, more mission-aligned way for consumers to pay and help them stay out of medical debt,” he said. “It’s an alternative to lawsuits, legal action, and things like that.”
AccessOne, which doesn’t buy patient debt from hospitals, doesn’t run credit checks on patients to qualify them for loans. Nor will the company report patients who default to credit bureaus. The company also frequently markets the availability of zero-interest loans.
Some patients do qualify for no-interest plans, particularly if they have very low incomes. But the loans aren’t always as generous as company and hospital officials say.
AccessOne borrowers who miss payments can have their accounts returned to the hospital, which can sue them, report them to credit bureaus, or subject them to other collection actions. UNC Health refers unpaid bills to the state revenue department, which can garnish patients’ tax refunds. Atrium’s collections policy allows the hospital system to sue patients.
Because AccessOne borrowers can get low interest rates by making larger monthly payments, this financing system can also deepen inequalities. Someone who can pay $292 a month on a $7,000 hospital bill, for example, could qualify for a two-year, interest-free plan. But a patient who can pay only $159 a month would have to take a five-year plan with 13% interest, according to AccessOne.
“I see wealthier families benefiting,” said one former AccessOne employee, who asked not to be identified because she still works in the financing industry. “Lower-income families that have hardship are likely to end up with a higher overall balance due to the interest.”
Andy Talford, who oversees patient financial services at Moffitt Cancer Center in Tampa, said the hospital contracted with AccessOne to make it easier for patients to manage their medical bills. “Someone out there is helping them keep track of it,” he said.
But patients can get tripped up by the complexities of managing these plans, consumer advocates say. That’s what happened to Milcowitz, the graphic designer in Florida.
Milcowitz, 51, had set up a no-interest payment plan with Moffitt to pay off $3,000 she owed for her hysterectomy in 2017. When the medical center switched her account to AccessOne, however, she began receiving late notices, even as she kept making payments.
Only later did she figure out that AccessOne had set up two accounts, one for the cancer surgery and another for medical appointments. Her payments had been applied only to the surgery account, leaving the other past-due. She then got hit with higher interest rates. “It’s crazy,” she said.
Lenders see a growing business opportunity
While financing plans may mean more headaches and more debt for patients, they’re proving profitable for lenders.
That’s drawn the interest of private equity firms, which have bought several patient financing companies in recent years. Since 2017, AccessOne’s majority owner has been private equity investor Frontier Capital.
Synchrony, which historically marketed its CareCredit cards in patient waiting rooms, is now also inking deals with medical systems to enroll patients in loans when they go online to pay bills.
“They’re like pilot fish eating off the back of the shark,” said Jonathan Bush, a founder of Athenahealth, a health technology company that has developed electronic medical records and billing systems.
As patient bills skyrocket, hospitals face mounting pressure to collect more, which can make financing arrangements seem appealing, industry experts say. But as health systems go into business with lenders, many are reluctant to share details. Only a handful of hospitals contacted by KHN agreed to be interviewed about their contracts and what they mean for patients.
Several public systems, including Atrium and UNC Health, disclosed information only after KHN submitted public records requests. Even then, the two systems redacted key details, including how much they pay AccessOne.
AU Health, which did not redact its contract, pays AccessOne a 6% “servicing fee” on each patient loan the company administers. But like Atrium and UNC Health, AU Health refused to provide any on-the-record interviews.
Other hospital systems were even less transparent. Mercyhealth, a nonprofit with hospitals and clinics in Illinois and Wisconsin that routes its patients to CareCredit, would not discuss its lending practices. “We do not have anyone available for this,” spokesperson Therese Michels said. Allina Health and Prime Healthcare also wouldn’t talk about their patient financing deals.
Bush said there’s a reason so few hospitals want to discuss their financing deals: They’re embarrassed. “It’s like they quietly write someone’s name on a piece of paper and slide it across the table,” he said. “They don’t want to be a part of it because they have in their institutional memory that they are supposed to look after patients’ best interests.”
Some hospitals and banks still offer interest-free help
Not all hospitals expose their patients to extra costs to finance medical bills.
Lake Region Healthcare, a small nonprofit with hospitals and clinics in rural Minnesota that contracts with Missouri-based Commerce Bank, charges no interest or fees on payment plans. That’s a decision that spokesperson Katie Johnson said was made “for the benefit of our patients.”
Even some AccessOne clients such as the University of Kansas Health System shield patients from interest. But as providers look to boost their bottom lines, it’s unclear how long these protections will last. Colette Lasack, who oversees financing for the Kansas system, noted: “There’s a cost associated with that.”
Meanwhile, large national lenders such as Discover Financial Services are looking at the patient financing business.
“I’ve had to become more of a health care marketer,” said Matt Lattman, vice president for personal loans at Discover, which is pitching the loans to people with unexpected medical bills. “In a world where many people are ill prepared to cover their health care costs, the personal loan can provide an opportunity.”
Tuesday marked the start of the tenth season of open enrollment in the ACA’s health insurance exchanges. Last year, a record 14.5M Americans obtained coverage through the exchanges, and this year’s total is expected to surpass that. That’s thanks to the extended subsidies included in the Inflation Reduction Act, a fix to the “family glitch” that prevented up to 1M low-income families from accessing premium assistance, and expanded offerings by most major insurers, who have been enticed by the exchanges’ recent stability. The average unsubsidized premium for benchmark silver plans in 2023 is expected to rise by about four percent, but the enhanced financial assistance will lower net premiums for most enrollees.
The Gist: ACA marketplace enrollment has grown nearly 80 percent since opening in 2014, and exchange plans now cover 4.5 percent of Americans. After enrollment lagged during the Trump administration,the combination of policy fixes and improved risk pools are attracting insurers back into the exchanges, where enrollees are finding more affordable plans than ever before.
We consider this a commendable first decade, but the success of the exchanges over the next ten years remains subject to political winds. Congress must revisit the extended subsidies by 2025, and a different administration might deprioritize marketplace advertising and navigation support, policies have which proven crucial to the exchanges’ recent growth.
All signs point to a crushing surge in health care costs for patients and employers next year — and that means health care industry groups are about to brawl over who pays the price.
Why it matters: The surge could build pressure on Congress to stop ignoring the underlying costs that make care increasingly unaffordable for everyday Americans — and make billions for health care companies.
[This special report kicks off a series to introduce our new, Congress-focused Axios Pro: Health Care, coming Nov. 14.]
This year’s Democratic legislation allowing Medicare to negotiate drug prices was a rare case of addressing costs amid intense drug industry lobbying against it. Even so, it was a watered down version of the original proposal.
But the drug industry isn’t alone in its willingness to fight to maintain the status quo, and that fight frequently pits one industry group against another.
Where it stands: Even insured Americans are struggling to afford their care, the inevitable result of years of cost-shifting by employers and insurers onto patients through higher premiums, deductibles and other out-of-pocket costs.
But employers are now struggling to attract and retain workers, and forcing their employees to shoulder even more costs seems like a less viable option.
Tougher economic times make patients more cost-sensitive, putting families in a bind if they get sick.
Rising medical debt, increased price transparency and questionable debt collection practices have rubbed some of the good-guy sheen off of hospitals and providers.
All of this is coming to a boiling point. The question isn’t whether, but when.
Yes, but: Don’t underestimate Washington’s ability to have a completely underwhelming response to the problem, or one that just kicks the can down the road — or to just not respond at all.
Between the lines: If you look closely, the usual partisan battle lines are changing.
The GOP’s criticism of Democrats’ drug pricing law is nothing like the party’s outcry over the Affordable Care Act, and no one seriously thinks the party will make a real attempt to repeal it.
One of the most meaningful health reforms passed in recent years was a bipartisan ban on surprise billing, which may provide a more modern template for health care policy fights.
Surprise medical bills divided lawmakers into two teams, but it wasn’t Democrats vs. Republicans; it was those who supported the insurer-backed reform plan vs. the hospital and provider-backed one. This fight continues today — in court.
The bottom line: Someone is going to have to pay for the coming cost surge, whether that’s patients, taxpayers, employers or the health care companies profiting off of the system. Each industry group is fighting like hell to make sure it isn’t them.
HENRY KOTULA 