How is Americans with medical debt?

A quarter of Americans owe $10,000 or more in medical debt, even though half of them have health insurance. To minimize excess health care costs, a new survey finds.

From a selection of survey options, 46% of respondents with medical debt chose the emergency room. Visits as the biggest reason for their debt. Just over 30% of respondents also chose treatment for Covid-19. And 23% also chose mental health treatment, according to the Affordable Health Insurance survey of 1,250 Americans.

About 55% of all respondents say they have some type of medical debt, saying it affects their other financial goals. In fact, nearly half of people with medical debt say it has prevented them from buying a home or saving for retirement.

Health insurance doesn’t seem to play a role when it comes to medical costs The survey found that health insurance doesn’t seem to make much of a difference in whether you have to take on medical debt — it just limits how much debt you’ll owe.

Medical debt report

According to the survey, 69% of respondents who pay for their own health insurance reported medical debt, as did 61% of respondents who have policies through their employer and 59% of respondents who have no health insurance.

One reason people with health insurance seem to be more likely to be in debt than those without coverage: deductibles.

“Most traditional insurance plans have high deductibles, whether they’re marketplace or employer policies,” writes Noor Ali, a health care consultant and physician, in a blog post accompanying the survey. “You will have to pay X amount of dollars out of pocket before the insurance company will pay you any benefits.”

People most often get health insurance through their employer, which has an average annual deductible on individual plans of $1,669 — though that number climbs to $2,379 for people who work at companies with fewer than 200, according to a recent survey by the Kaiser Family Foundation employees.

American medical debt problem

For Affordable Care Act marketplace plans — also known as Obamacare — the average annual deductible for individual coverage was $4,364, according to a 2020 analysis by health insurance broker eHealth.

It’s not easy to balance the cost of monthly premiums with deductibles The reason many people choose high deductible plans is that they tend to come with lower monthly premiums that can cost hundreds of dollars.

However, according to the American Academy of Family Physicians, policyholders with high-deductible/low-premium plans are less likely to seek primary or preventive care due to high upfront costs. Because many health problems are unexpected and exacerbated by a lack of preventative care, policyholders can quickly find themselves in debt, especially when they have to pay the full annual deductible.

Including deductibles and premiums, Americans spend an average of $12,530 on medical expenses each year. That’s nearly 20% of the annual income for those earning a median household income of $67,521, according to 2020 U.S. Census data.

This means that having some type of health insurance, even an Obamacare bronze plan, will still protect you from excess health care costs that can run into the hundreds of thousands of dollars in the event of a disaster.

How to minimize health insurance costs

A higher deductible usually equates to a lower monthly premium, but the two can vary, as can services that may be excluded from the deductible, such as doctor visits or prescription drug costs. That’s why Ali recommends that policyholders evaluate their health needs. When choosing a plan and comparing them to what each policy’s benefits actually offer.

To minimize medical expenses on individually purchased plans, Ali recommends shopping in the ACA marketplace. Especially if your household income is 100% to 400% above the federal poverty level. As there are government subsidies that can negate or drastically reduce your monthly premium costs. Even for gold plans with lower deductibles. You can see what the income limits look like in your state here.

It is also possible to qualify for health insurance based on good health, which can lower your premiums. However, these policies are often limited to 36 months or only offer additional coverage for things like vision or dental. Rules also vary by state.

Ali also suggests creating a list of local health care providers. Within the network that can be accessed quickly if needed. This minimizes accidental use of out-of-network providers, which can be expensive, especially for emergency room visits.

“Emergency room care is for acute conditions where you’re bleeding, injured, or distressed and can’t breathe,” she says. If it’s not that serious, Ali suggests starting with a phone appointment. Then a doctor’s office visit, then an urgent care facility, and then an emergency room visit as a last resort.

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Additional debt relief is available this year

Starting in 2022, policyholders have new protections against “surprise billing” from out-of-network providers.

The newly enacted legislation prevents emergency services from charging out-of-network fees. Although there are exceptions when and where this protection applies. For example, ambulances are not part of the legislation.