As essential a service as anesthesia is, the specialty is particularly vulnerable on a number of fronts. Although most patients have insurance that pays reasonable rates for subscribers’ care, fees are significant and often come close to surgical fees. Even when insurance plans pay 80 percent of the allowable fee, balances can be substantial. And if patients do not have insurance, patient responsibility can be significant. The problem is that the anesthesia bill is just one of many that patients receive as a result of medical treatment. For patients who do not have significant financial reserves, the cumulative impact of the cost of each procedure can be overwhelming.
The fact is that 65 percent of all bankruptcy filings in the United States are the result of medical bills. As a result, the cost of American healthcare and its financial impact has become a subject of major political concern in Congress. The COVID-19 pandemic increased the risk for many Americans of filing bankruptcy due to medical issues, given the loss of health insurance caused by rising rates of unemployment.
Breaking It Down
For purposes of financial reporting, Coronis breaks activity down by billing class. Each billing class represents two factors: the expected rate of payment and the process by which claims are paid. For Medicaid claims, for example, there is, in most cases, only one rate and one payment. There is no co-payment or deductible. The claim is either paid or not. For Medicare, by contrast, there is an allowable payment of which 80 percent is paid by Medicare and 20 percent by the patient or co-insurance and there is a deductible at the first of the year. Commercial insurance, such as Blue Shield, Cigna, United Healthcare, etc., use a similar methodology, but the rates are much higher. Patients who have no insurance are obviously the most difficult to collect from. Thus, actual patient responsibility varies by billing class. It is this patient responsibility that may lead to bankruptcy.
Once a patient files for bankruptcy and it is approved by the court, all medical debts are dismissed. This is the last stop in the collections process. Bankruptcies are a reflection of the underlying state of the economy. Comparing national filings in the year ending June 2023, there were 418,724; but, in the 12 months ending June 2024, this number rose 16 percent to 486,613, of which 316,298 were medical bankruptcies. In other words, about 1.5 percent of Americans are now filing for bankruptcy.
Seeking Legislative Solutions
Over the past decade, legislators have attempted to address the challenges facing Americans who are unable to pay their medical bills. The Medical Bankruptcy Fairness Act of 2021 was introduced in the Senate earlier this year as a reiteration of earlier legislation proposed to help streamline bankruptcy procedures for medically distressed debtors whose financial issues resulted from medical debt or public health closures. It was referred to the Judiciary Committee where it awaits further action. The Act is similar in many ways to prior legislation; however, it differs from its predecessors in that it expands the definition of a medically distressed debtor to allow for student loan discharge within bankruptcy—even for those who have not incurred medical debt but have experienced a change in employment during the pandemic that lowered their income.
Prior legislation set out to create a category of consumer debtors as “medically distressed debtors,” which included any individual who accumulated medical debt that was more than 10 percent of their adjusted gross income during the three-year period prior to filing bankruptcy. Under previous bills, once the debtor would be designated as a medically distressed debtor, they would be eligible for protections that enabled them to retain their residential equity, waive credit counseling and discharge student loans, without the requirement of proving undue hardship.
The Act goes a step further than previous legislation by creating a new criterion that broadens the definition of who can qualify as a medically distressed debtor, even if they have not incurred medical-related debt. It would enable anyone who had a change in employment status that reduced their salaries, wages, commissions or work hours, or who lost their jobs due to the COVID-19 pandemic, to be designated as a medically distressed debtor. While prior legislation required medical debt to be incurred, the current proposed Act only requires a reduction of any size in the individual’s income or employment status.
Medical debt creates repercussions in all aspects of a debtor’s life; and its causes cannot be controlled or managed, unlike many other financial events leading to bankruptcy. There are no easy answers regarding how best to address the unique challenges faced by medically distressed debtors within the bankruptcy system. In the context of a global pandemic and the added financial and medical burdens it created, the Medical Bankruptcy Fairness Act of 2021 brings these issues to the forefront where elected official and legal professionals can seek ways to provide a more streamlined pathway through the bankruptcy process for those who have suffered a medical crisis. Time will tell if the proposed legislation will be passed into law and ultimately lead to a cure for the financial distress afflicting medical debtors in the wake of the pandemic and beyond.