I have a question about medical debt. My 36-year-old sister just suffered a brain hemorrhage, collapsing at work and sent to the hospital. I am happy to say that she is expected to make a full recovery, but the treatment and ensuing hospital stay involved a week in intensive care, a neurosurgical “procedure,” numerous CT scans, and many, many medicines which she will take for months, if not her entire life. Although she and her husband have health insurance, they otherwise live on a very tight budget, and we are afraid of the hospital bills that will result from this incident.
We “heard” that health-care providers cannot bankrupt people who are unable to pay. If they do the best they can to cover the bills but simply fall short, which they most certainly will, on both counts, does some entity absorb the debt that they cannot pay? The government? The hospital? The insurance companies?
I mean, what do they do if the family simply doesn’t have the money to pay for the essential care she received?
Thank you, Concerned Sister (Alexandria, VA)
I’m sorry to hear about your sister’s condition, and I hope she continues to recover.
Your question is a really important one – as extraordinary medical costs often bring on a financial calamity, following directly on the heels of a health calamity.
I read in your question anguish over your sister’s health – compounded by the anguish of financial insecurity for her even after she achieves a full recovery.
A hospital/patient relationship, in my opinion, is distinct from a business/customer relationship or banker/borrower relationship in a way which should change the way debt gets treated.
By that I mean neither the hospital nor your sister had a choice about the transaction. Your sister clearly didn’t choose to get a brain hemorrhage and her choice of treatment – whether made by her or her family – was made under considerable duress. The hospital, for its part, cannot refuse to treat your sister’s condition, despite its cost to the institution, or her likely ability to pay. She has to have the treatment to survive – given the consequences of not getting treated – and the hospital has to treat her, regardless of the financial consequences.
This absence of choice makes medical debt different from, say, ordinary credit card debt.
In my business experience, and indeed in my basic world view, refusing to pay a debt is akin to stealing. You received something valuable. Reneging on payment means you took that valuable thing without paying. This is hard-assed and perhaps unpopular, but that’s my view. Don’t hate me, I’m an ex-Banker.1
Medical debt stands out, however because of the absence of choice between customer and provider.2 Fortunately, most hospitals take this into account and assume a certain amount of financial indigence in their patient population. In other words, most hospitals make a larger provision for non-payment of their bills than a typical business. Traditionally, most hospitals have been run by religious organizations, governments, or universities that consciously blend a financial approach with an ethical non-financial approach to providing service.3
This approach could mean good news for your sister and your family, as the hospital should be prepared for many patients’ inability to pay their bills in full, including your sister’s.
Now, to return to your specific question of what can happen – and what your family should do. It’s a myth that the hospital can’t push your sister into bankruptcy.
Of course they can. Here’s the worst case scenario:
Let’s say she owes $50,000 to the hospital, and she ducks the bill because, as you say, she doesn’t have the money to pay it. The hospital will refer the bill to a collector, who can initiate a letter and phone campaign to get her attention and urge payments. Occasionally this campaign can threaten her employment, and it certainly will put her through considerable stress.
Following continued non-payment, the hospital may refer the bill to a collection attorney, who may take a period of time to sue her in court to obtain a judgment. With a judgment in hand, the hospital can, in most states, garnish her wages4, place a lien on her home5, or haul her into a court for a debtor’s exam to disclose her income and assets.
By the time (at least a year from now) that the hospital has obtained a judgment, the amount due will have risen considerably owing to penalties, interest, and lawyer’s fees.
With a court-ordered judgment, her credit will be wrecked so any future borrowing will be either refused or offered at usurious rates.
Needless to say this is a bad place to be in, and bankruptcy could seem like an attractive option for your sister.
So what should your sister and your family do to avoid this?
Up front, you should make an accurate record of her income and assets.
Ideally, for your short-term purpose, this record will show her inability to settle her $50,000 medical debt.
Next, find the highest ranking person in the hospital’s accounts receivable department and plead your sister’s case, offering to pay something monthly that she can actually afford. If that’s $100/month great, but if it’s only $25/month, so be it.
At a rate of $100/month ($1,200/year) that $50,000 medical debt will never be paid in full. That’s ok. At some point, a year or three from now, your sister can return to the hospital receivables department and offer some lump sum amount ($5,000?) based on her tax refund or house refinancing or ability to borrow $5,000 from a bank. Chances are, at some point, the hospital will welcome the partial settlement and offer debt forgiveness on the remainder.
Not-for-profit hospitals, in particular, budget for non-payment by many patients. Many may budget a particular amount of non-payment per year, so forgiving the $45,000 your sister can’t pay in 2013 may be impossible now since it exceeds their figure, but may be possible later because of the budget in a new calendar year.
As a finance professional who dealt with many non-paying debtors, I was always receptive to minimal monthly payments from an upfront debtor who made clear to me that non-payment and bankruptcy represented a much worse, mutually-assured destruction option. If the hospital accounts receivable department acts rationally it will welcome some regular, low payments now rather than engage in a collections fight with your sister that they’re uncertain to get anything from in the future.
I hope that helps and good luck to your sister and your family.
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- Of course we can all imagine scenarios in which stealing may be ethically justified, such as a parent attempting to provide food or basic shelter for their minor children. The ethical imperative and human impulse to survive trumps the ethical imperative to not steal in certain circumstances. Yes, I just agreed to accompany my wife to the movie version of Les Miserables. Jean Valjean stole a piece of bread 19 years ago. That’s fine, I forgive him. ↩
- The exceptions being optional medical procedures, such as elective plastic surgery. You had better pay for those butt implants in full, or else I will judge you harshly! ↩
- It’s also why I have an instinctual aversion to for-profit medical practice. Yes, there may be some additional efficiencies to be gained from market practices, but medical service is not like other services. In the absence of a choice of whether or not to treat your broken leg, or appendicitis, or brain hemorrhage, pure profit motives can create ethical monstrosities. ↩
- Not in Texas for example and a few other states. ↩
- Not in Florida for example or Texas and a few other states with ‘homestead’ exemptions. ↩