Why Past-Due Medical Bills and Low Financial Literacy Go Hand-in-Hand
By Dan Kadlec
March 6, 2017
Healthcare expenses are an outsize burden on many households, and unpaid health-related bills correlate highly with low levels of financial literacy, according to two new papers from the Urban Institute. The conclusion: financial education at all ages probably should focus more on medical costs and insurance.
This is a thorny topic—and especially complex now, as the Trump administration prepares to dismantle Obamacare, which was itself a fairly new program. Yet that is no reason for educators to shun the subject. The role of health insurance remains constant, even if the landscape is constantly shifting.
The basic protection from medical expense that insurance provides can be conveyed to young people without getting into the weeds of plan differences. Workplace and community financial education would do well to offer more guidance at the point of purchase—when people are actually choosing a plan.
Unpaid debt that hospitals and other medical providers have turned over to a collection agency account for half of all debt in collections, according to the Consumer Financial Protection Bureau. One in five consumers have gone through this process.
The good news is that the share of adults with past due medical debts fell the three years ending in 2015, the Urban Institute found. That is a period when financial education programs generally expanded. The institute recommends that policymakers and corporate and community leaders double down on consumer education as part of a strategy to lift individuals out of medical-debt hell.
The state with the highest rate of individuals with past due medical debts is Mississippi, at 37.4%. Mississippi also has the lowest financial literacy scores by a variety of measures.
Individuals that can correctly answer no more than one of five financial literacy questions are significantly more likely to have past due medical bills than those that can correctly answer at least four of the five questions, the institute found.
An area of concern: people that have taken a financial education class in high school are no more likely to be current on their medical bills. This suggests that such programs do not adequately deal with the subject.
Buying health coverage is fundamentally a financial decision. What will it cost for coverage? What will it cost if I get sick and have no insurance? What are the financial penalties for ignoring laws that mandate coverage?
Those who can work through the math are more likely to have health insurance regardless of income, employment status or political affiliation, according to a Rand study. As a nation, we must improve general understanding of personal financial issues and design health plans and supporting materials that can be easily understood, the Rand researchers concluded.
Financial education that looks at the simple reasons for health coverage and how it may cut expenses in the long run will always be useful.