While the cost and provisions of the Affordable Care Act tend to take center stage in health care discussion, there are other health care issues that have significant impact upon Americans. One such lesser known story is the problem of medical debt.

Medical debt relates to families and individuals whose health care costs--regardless of insurance coverage--have placed them in serious financial trouble. The true extent of the medical care debt problem in the U.S. is uncertain, but is a portentous situation, according to some studies that have been conducted.

Legislation has also been drafted to tackle aspects of the problem. Earlier this year Rep. Mary Jo Kilroy (D-Ohio) announced that legislation she sponsored, H.R 3421, the Medical Debt Relief Act, has been reported out of committee, which means it may be soon brought to the House floor for a vote. Rep. Carol Shea-Porter (D-N.H.) has sponsored H.R. 901, the Medical Bankruptcy Fairness Act, which was the subject of a July congressional hearing.

What are the underlying issues with medical debt, and how serious a problem is it in the context of insurance changes and other implementations from health care reform? Below is an overview with input from experts on what is likely to be a growing story.

The legislation

While the Medical Debt Relief Act is fairly narrow in scope, the legislation addresses one of the collateral effects of such debt, damage to credit rating and financial stability. The purpose of the act is exclude from consumer credit reports medical debt that has been characterized as debt in collection for credit reporting purposes, and has been paid or settled.

According to the Congressional findings in the legislation, medical debt is "unique," because "unlike consumer debt, Americans don't get to choose when accidents happen or when their genetic traits will catch up to their health profile." The findings go on to report that medical debt affects millions, and accounts for more than half of all non-credit related collection actions reported to consumer credit reporting agencies. Medical debt is also more likely to be in dispute, and not of good value in predicting future payment performance because the debt is atypical.

The Medical Bankruptcy Fairness Act is intended to offer certain bankruptcy protections for homeowners who have medical debt, to restore some bankruptcy protections for individuals who have experienced economic distress as caregivers to ill or disabled family members and provide an exemption from means testing debtors whose financial problems were caused by serious medical problems.

Congressional investigation

The House Committee on the Judiciary, Subcommittee on Commercial and Administrative Law held a hearing this year concerning the Medical Bankruptcy Fairness Act. Witness Hon. Cecelia G. Morris, U.S. Bankruptcy Judge, Southern District of New York, testified regarding the rise of medical debt-related bankruptcies. Morris felt that the effect of serious medical problems on bankruptcy has actually been understated in research because, in part, medical debt is "pervasive and often disguised as other types of debt including credit card debt, mortgage debt or judicial judgments."

"My ten years on the bench as a bankruptcy judge in a largely consumer court has shown that debtors will do anything to pay medical bills for themselves, their spouse, children or member of their household. Their need for care outstrips any financial caution," Morris stated.

However, Aparna Mathur, resident scholar and Jacobs Associate of the American Enterprise Institute, testified that a recent Survey of Consumer Finances actually shows that medical indebtedness has not changed significantly over the past decade. While bankruptcy filings have increased by 25 percent since around 2000, Mathur said, medical debts have not changed significantly as a share of total debt over this period and are not a significant factor in raising consumer bankruptcies. Mathur also said that the legislation could "create perverse incentives for debtors to accumulate non-medical debts prior to a filing, as long as they can file as medically distressed debtors."

Peter S. Wright, Jr., professor of law in the Franklin Pierce Law Center of Concord, N.H., was the third witness for the hearing. He felt that medical debt was closely related to bankruptcy. Wright testified that from his perspective of assisting low-income debtors in bankruptcy court, the incidence of medical debt and impact upon income caused by illness or injury has "a cumulative effect which often propel[s] the debtor and family to seek bankruptcy protection. Because so many families are living paycheck to paycheck on the edge of financial calamity, any significant interruption in income pushes them over the edge."

Experts weigh in

Two experts who are familiar with medical debt issues are Dr. Steffie Woolhandler and Karen Davenport. Woolhandler was co-author of a study on medical debt-related bankruptcies and a professor of medicine at Harvard Medical School at the time the study was done. Davenport is director of health policy for the Center for American Progress. Both spoke to DOTmed about the gravity of the medical debt situation for consumers.

"Medical care involves huge costs for patients. Insurance is full of gaps and deductibles and uncovered services, so many with illnesses find themselves with thousands of dollars in debt," Woolhandler explained. "This is not simply a problem with uninsured, but also for those with private insurance who are experiencing prolonged illness. Their debt is made even worse if they become too sick to work or need to take an absence from work to care for a sick family member, so often they can lose insurance when they need it most."

Woolhandler also points out that in addition to mounting debt, many persons in this situation lose their job for reasons relating to the illness.

Woolhandler's study on bankruptcy surveyed over 2,300 participants. The researchers obtained detailed reasons for the bankruptcies the participants had filed. Around 60 percent of the participants stated that one reason for the bankruptcy was illness or income loss due to illness.

"The issue does not get the attention it should in health policy debate," Woolhandler said. "We know about the numbers: one and a half million bankruptcies will be filed this year, and we know two thirds will be due, at least in part, to medical bills or illness. This is a very large problem. To demonstrate how large, a woman has as much probability of filing bankruptcy as graduating college, and two-thirds of those bankruptcies in turn will occur in the wake of a medical illness." The numbers of those affected by medical debt may even be understated, as some people with illnesses are too sick or too demoralized to file bankruptcy, even if it is in their best interest.

Davenport agrees that medical debt may be underreported because it is often hidden in other debt. "You may use a credit card to pay for a procedure and if the cost of the procedure is really significant, you may end up getting a loan from the bank or a home equity loan. You may well have medical debt that is money owed to a hospital or clinic, but often you have done what you could to pay off the medical debt but incurred other debt. People often do that when they are in the midst of treatment and need to keep paying the bills and keep the treatment going."

What kind of problems does medical debt cause? Woolhandler says an earlier data collection in 2001 found that many persons avoided seeing the doctor or didn't fill prescriptions because of cost. She points out other studies, such as from the Commonwealth Fund, found that people with high medical debt behave like those with no insurance -- they do not seek out preventative care.

Davenport says financial stressors may not always rise to the level of bankruptcy, but consumers face myriad other financial problems. They may spend down their retirement savings, or their credit scores are affected. With credit problems, the ability to obtain other assistance, such as a student loan, would be impacted. Davenport agrees with Woolhandler that those with debt may further exacerbate their medical problems because of the high cost of care, including medications, which can lead to splitting pills or simply not filling a prescription and going without the care they need. This is not just an issue of how many are forced into bankruptcy, Davenport remarks, but how many have trouble paying medical bills that create further hardship, reduce the level of care, skimp on prescriptions and affect the consumers who are most vulnerable, including older persons or those with a chronic illness.

The demographics of medical debt seem to affect the middle-aged. From the data gathered for the bankruptcy study, Woolhandler and her associates determined that the average age of the person filing bankruptcy was 45, and a majority were women. Younger persons did not appear to have had a chance to accumulate debt, and seniors are less likely to file bankruptcy, perhaps because of the safety net of Medicare and Social Security. The rate of bankruptcy filing is associated with family size, Woolhandler said. "That suggests problems with the social safety net. Those with larger families are more likely to face crises than a single person."

Davenport suggests another way to look at the medical debt situation is to review the work researcher Karen Pollitz and colleagues did with comparisons of policies in California and Massachusetts, and how much difference in policies there are for people who have a particular condition, and the out-of-pocket costs some may end up facing. The executive summary of Pollitz's study found that health insurance protection is "highly dependent on the policy purchased. An insured person who becomes seriously ill might have to pay thousands, or tens of thousands, of dollars out-of-pocket for needed care."

For the consumers facing the high out-of-pocket costs, the difference in policy represents "financial catastrophe." The summary concludes: "The affordability of health insurance premiums cannot be considered independently of the adequacy of coverage health insurance provides," as the adequacy of the coverage is key to the range of costs placed upon the consumer.

Davenport points out the Pollitz study demonstrates what kind of liability people may be facing and what kind of pressure is on consumers with mounting medical debt. "And then you have folks with a situation where the insurers rescind the coverage once a person gets sick. They have insurance and pay the premiums and then when they develop cancer or a heart condition the insurance company goes back and finds something that serves as a pre-existing condition and the entire policy is revoked."

Will the Affordable Care Act or the Kilroy bill offer any significant assistance to those facing medical debt? With the Kilroy bill, Davenport says, the proposal is about how much resolved medical debt will impact the credit score. For consumers with the ability to take care of the medical debt, that would improve their situation. Those who might be particularly helped are the policyholders in contention with their insurance company over payment. Once the claim is resolved, the debt would removed from the credit report. "However," she points out, "if the consumer does not have the means to pay the debt, the Kilroy bill does not have much effect."

From Woolhandler's perspective, the Affordable Care Act offers a small possibility of relief. The act expands Medicaid coverage for the poor, so to the extent that bankruptcy is associated with lack of insurance, it helps. However, she points out, most bankruptcies are filed by those with insurance. In that instance, Woolhandler says, the Affordable Care Act may make the situation worse by setting a minimum standard of insurance (for the plans in the insurance exchanges) that is "skimpy" -- only covering 60 percent of average medical care costs by actuarial value. The families will be expected to pay the rest of the medical costs. This minimum standard of coverage will rapidly become the norm, Woolhandler feels, leaving families with grossly inadequate protection.

"For the people who are uninsured or underinsured, or being taken advantage of by the insurance company, the problem is acute, because of the financial hardship of high medical expenses, and their ability to obtain ongoing care. Certainly we know that the people who are underinsured, as an example, delay care, get less care and are likely to die when they get sick. The folks who either don't have coverage at all or have coverage which doesn't cover their needs, are incurring a relatively high proportion of their income to medical debt."

Davenport concurs with this assessment. If consumers are uninsured now, there will be various kinds of help getting insurance through the Affordable Care Act, she explains. But a major issue is consumers being victimized by insurance company abuses, including rescission of coverage or refusal to pay claims. Some of the reforms in the act may help in that regard. But in terms of comprehensiveness of coverage, the improvements in the act won't completely fix the problems for people, due to the leeway insurers may get in designing benefit plans and the terms of co-payments and deductibles. That opens the door for people to still be caught in expensive out-of-pocket costs. In addition, Davenport notes that half of the people who are covered will be so through private insurance offered in the exchanges in 2014. The key to consumer protection for costs in those plans must include oversight.

If the Affordable Care Act is to have true assistance for those with medical debt, Davenport concludes, two important regulatory aspects need to be addressed: limiting the leeway that insurers will have to determine out-of-pocket costs in their plans, and ensuring that enforcement of insurance regulations for plans in the exchanges is truly effective in preventing insurer abuses.

More on the Pollitz study may be found here: http://www.americanprogressaction.org/issues/2009/05/health_coverage.html

The committee hearings may be accessed here: http://judiciary.house.gov/hearings/hear_100715.html

Dr. Woolhandler's study may be found here: http://www.pnhp.org/new_bankruptcy_study/Bankruptcy-2009.pdf