Economic Conditions Could Spur Medical Debt Collection Volume

The U.S. Census Bureau’s report this week that fewer Americans had private insurance last year, while more fell into poverty seems like a mixed message to debt collection professionals. But it may be more good news than bad for the account receivable management industry, given the declining unemployment rate, increase in Medicaid rolls and health care insurance deductibles.

The Census reported Tuesday that the poverty rate climbed to 15.1 percent last year, up from 14.3 percent in 2009, the highest the nation’s poverty level has been since 1993. Incomes, meanwhile, fell by 2.3 percent and the percentage of people with private insurance fell slightly to 64 percent last year from 64.5 percent a year earlier.

The decline in private insurance holders was offset slightly because health care reform allowed more young adults retain the coverage offered by their parents’ health insurance plans. But the drop still leaves 1.5 million fewer people without private insurance coverage, while those covered by government insurance programs increased 31 percent.

The growing number of people in poverty, and who are uninsured or underinsured, will put pressure on health care providers to place their receivables in the hands of debt collection agencies, experts say.

“I don’t see health care collections suffering,” said Kaulkin Ginsberg Analyst Mark Russell. “If anything there may be a temporary increase in volume.”

Jim Richards, CEO of health care receivables buyer Capio Partners, also expects account volume to increase.  And more of it will come from the working insured because of lower incomes and higher deductibles.

“If you’re making less money you really can’t afford to pay the hospital bill. And we’re going to get more people that have insurance that now owe more money. That’s going to make a big difference in their ability to pay,” Richards said.

Both Richards and Russell say declining incomes could lead to lower average payments, but there is hope that may not happen. Russell pointed to the declining unemployment rate, which fell to 9.1 percent in August. He said some economists are forecasting unemployment rates below 9 percent by the end of next year.

“If the unemployment rate stays where it is or continues to decline, more people will be able to pay something back. Also, the Obama Administration is making a push to create more jobs.  That would bode well for liquidation going forward,” Russell said.

Likewise, Richards said collections should benefit from more people on government insurance programs because the ARM industry won’t waste time and resources trying to collect money from people who don’t have it.

“These people used to be totally uninsured. Once they go on government programs it’s better for us because Medicaid pays and that debt never shows up at the agencies or with debt buyers,” Richards said.

Russell said the most immediate danger to the industry is consumer confidence. If more people believe that the economy will not improve and stop spending, the nation could face another recession. Another recession also is possible if the international investment community loses faith in the U.S. bond markets because of political uncertainty similar to that displayed around raising the U.S. debt ceiling.

Richards said the good news for society from the census data is that more consumers will question the cost and necessity of the procedures they are getting.

“Health care is the only thing that people buy and don’t look at the cost.  The only way to curb health care spending is to have buyers question the cost,” Richards said.