Improving Clients’ Healthcare Cost Management

Quick look: Collectively, $195 billion worth of medical debt exists in the U.S. While moves are being made to reduce the impact this debt has on consumer credit reports, the bills themselves can be stressful and raise overall healthcare costs. Here’s how brokers can leverage a PEO’s suite of employee benefits to help their clients greatly improve their healthcare cost management.

Healthcare costs are rising, and many Americans are carrying medical debt. In fact, national health spending is projected to grow at an average annual rate of 5.4% until it reaches $6.2 trillion by 2028.

In addition to thinning Americans’ wallets, the burden associated with medical debt also takes a toll on employers. PricewaterhouseCoopers reports that over three-quarters of stressed employees claim that financial worries have had a negative impact on their productivity.

The current medical debt situation in the U.S. is troublesome, but brokers can partner with a professional employer organization (PEO) to provide clients and their employees with affordable treatment and healthcare cost management methods.

The details on debt

Unfortunately, millions of American adults have medical debt ranging from hundreds to tens of thousands of dollars. The Kaiser Family Foundation (KFF) discusses the status of this debt in its recent report, “Health Care Debt In The U.S.: The Broad Consequences Of Medical And Dental Bills,” and explores who carries debt, how much they owe, and the inequalities associated with these unpaid bills.

Who has debt?

According to the KFF report, over 40% of U.S. adults carry medical or dental debt. To paint an accurate picture, the survey examined types of debt that may not typically be associated with medical costs, like whether people had:

• Medical or dental bills past due
• Bills they were paying off over a period of time
• Debt they owed to a bank or other lender for medical or dental bills
• Bills that were charged to a credit card and were still being paid off
• Debt owed to friends or family members to pay for medical or dental expenses

In addition to those currently saddled with debt, another 14% of respondents reported they’ve carried medical or dental balances within the past five years that they have since paid off.

How much do Americans owe?

KFF estimates that the total amount of national medical debt is a whopping $195 billion. Another recent study from Peterson-KFF, titled “The Burden of Medical Debt in the United States,” found that 23 million people—about 1 in 10 Americans—owed $250 or more in medical expenses.

The report also found that approximately 16 million people owe at least $1,000 in medical debt, and another 3 million—roughly 1% of adults—owe more than $10,000.

The debt disparity

Medical debt doesn’t impact everyone the same way. Different demographics face different amounts of unpaid bills. Consider the following findings from the KFF study:

• People without a college degree are more likely to report medical or dental bills than college graduates (47% vs. 31%).
• Almost half of women have debt due to medical or dental bills, compared to approximately one-third of men (48% vs. 34%).
• 56% of Black adults and exactly half of Hispanic adults report carrying medical debt, compared to just 37% of white adults.
• Medical and dental debt seems to peak between ages 30 and 49, with over half of this segment reporting current debt. This is likely because half of this age group have children under 18, and it’s been shown that parents are more likely than non-parents to carry healthcare debt from their own or someone else’s bills (58% vs. 35%).
• Geographically speaking, nearly half of adults in the South have medical debt compared to approximately one-third of those in the Northeast and Western U.S.

A changing system

As unfortunate as medical debt is, recent and upcoming changes are occurring to protect the credit scores of those paying these bills.

In March 2022, the three major American credit reporting agencies—Equifax, Experian, and Transunion—announced they would remove roughly 70% of medical collection debt from consumer credit reports. These changes were sparked by the fact that two-thirds of medical debt is due to a one-time or short-term expense stemming from a critical medical need.

Beginning in July 2022, all paid medical collection debt was removed from consumer credit reports. This is a significant update to the previous rule in which paid medical debt could remain on reports for up to seven years.

Also included in July’s update, the credit agencies extended the time before unpaid medical collection debt appears on a consumer credit report from six months to one year. This move aims to give people more time to negotiate with insurance companies and healthcare providers to settle the debt.

Lastly, starting in the first half of 2023, the credit agencies will stop including medical debt under $500 on consumer credit reports.

Battling the burden with the right benefits

Medical-related debt can happen to anyone, at any time. These expenses can tighten employees’ budgets, reduce workforce productivity, and drive-up overall healthcare costs. Luckily, brokers who partner with a PEO can help clients (and their staff) optimize their healthcare cost management.

By leveraging a PEO’s economy of scale, brokers can offer their clients affordable access to Fortune 500-level benefits, including medical, dental, and vision coverage with health savings account (HSA) options. If possible, clients can lighten their employees’ load even more by contributing a set amount to their workers’ HSAs each month.

Beyond standard health coverage, a PEO offers benefits that can help workers in other ways.

With 90% of Americans claiming that their finances impact their stress level, access to an Employee Assistance Program (EAP) is another helpful benefit made possible by partnering with a PEO. An EAP’s services can help your clients’ staff address financial concerns, stress and anxiety, and more.

In addition to paying down today’s debt, PEOs can also help clients prepare their employees for future medical needs. For instance, they can provide access to 401(k) retirement plans to help workers get ready to pay for their future medical expenses. This will surely come in handy when considering that a 65-year-old couple retiring in 2022 will spend over $300,000 in medical expenses during their retirement (5% higher than the previous year). And with multiple tax advantages, an HSA can also act as a useful tool for retirement savings, too.

The right PEO offers benefits and so much more. Contact the experts at ExtensisHR to discover how our full range of HR services can strengthen your book of business—and your client’s healthcare cost management strategies.