Hospitals applaud moving those who are uninsured to some form of coverage, but the hospital industry faces challenges serving the 86% who have switched away from more comprehensive insurance coverage. This trend in consumers moving to high-deductible plans may increase hospitals bad-debt expense, compromising the long-term viability of these products.
Hospital bad-debt expense has risen steadily for several years in large part because of balances owed by patients after their insurance company pays its portion. At Tenet Healthcare Corp.s hospitals, 60% of our patients do not pay their bills in full. This includes both the uninsured and others who cannot or choose not to cover their deductibles or out-of-pocket expenses. Fewer than 10% of our patients were uninsured or qualified for charity care in 2007. Approximately $132 million of our annual bad-debt expense is related to those who have some form of insurance and do not pay the expenses for which they are responsible.
Why do we suspect that high-deductible plans are contributing to unpaid hospital bills? HSAs are often initially underfunded, because of the deductibles that can range around $2,650 for individuals and $5,600 for families and out-of-pocket liability as high as $11,000. While a benefit of HSAs is that enrollees who do not spend their savings can allow money to roll over from year to year, a family that has not funded its HSA sufficiently will have to tap its savings to pay healthcare bills. Healthcare is a complicated issue for many families, and it is difficult to ensure that potential patients can prioritize financial obligations to doctors and hospitals at the same level as mortgage, utility and credit card payments.
At Tenet, out of necessity we are gathering new and better information to help understand these trends. However, we believe that there is an early indication that higher deductibles are driving hospital bad-debt expense. Enrollees are taking more risk than they can reasonably afford and are placing their priorities on other financial obligations.
So, how do we reconcile concept with reality? Enrollees need to be better informed of their need to ensure they can meet the higher deductibles theyve chosen. Furthermore, because average balances in HSAs typically increase with the length of time enrollees have these plans, a bridge loan may be the wisest choice. Several payers are attaching credit vehicles to the HSA for precisely this purpose.
At Tenet, we provide healthcare benefits to 43,000 employees. While fewer than 1,600 select a high-deductible plan we have offered, our company is taking progressive steps to enhance its overall viability. In 2008, we will be funding HSAs from $500 to $1,000 depending on the enrollees participation in Tenets wellness programs. This step is important because we want to encourage adequate HSA funding and healthy behaviors.
A recent Gallup Poll shows that nearly three-quarters of Americans think the U.S. healthcare system has major problems or is in a state of crisis. Therefore, as policymakers seek to reform our national healthcare system, it is important to recognize the realities and limitations of high-deductible plans without well-funded HSAs. Some steps have already been taken such as requiring certain HSA contribution limits and authorizing incentives for employers who contribute to their employees HSAs. However, further steps must be taken, such as exercising greater oversight of plans whose enrollees generate high levels of bad debt for doctors and hospitals. Offering high-deductible plans is a shared responsibility between employers and health plans. Both should monitor employee performance on paying what is due to providers in order to prevent free riding within the risk pool.
No one wants to see what is happening in the subprime mortgage industry repeat itself in healthcare. That is why it is important to heed the warning signs and take action before it is too late.