Medical Debt Cancellation Act: Temporary relief but the root cause is still there

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By Christine M. Cooper and Jack Towarnicky

The Medical Debt Cancellation Act seeks to alleviate financial stress for Americans burdened by health care expenses. However, concerns remain about the law’s long-term effectiveness and the potential taxpayer burden.

Medical debt affects a diverse range of Americans, especially those with chronic conditions such as diabetes, heart disease and cancer, which require ongoing and costly treatment. Without comprehensive health coverage, out-of-pocket expenses can be significant, leading to financial hardship.

However, it is important to note that a significant portion of medical debt is borne by individuals who did have comprehensive insurance but were not able to financially prepare for their out-of-pocket costs. Consequently, the largest number of Americans with medical debts are those who had comprehensive coverage but faced unexpected medical costs they were unable to pay immediately.

Evaluating and enhancing medical debt cancellation solutions

Although the Medical Debt Cancellation Act offers temporary relief, it does not tackle the root causes of high health care costs. Sustainable solutions require fair pricing practices, better rate negotiations and billing transparency to prevent persistent medical debt. Implementing reference-based pricing, which sets limits on what health plans will pay for certain procedures based on average costs, can prevent excessive charges, and, in turn, excessive, unaffordable out-of-pocket expenses.

Third-party administrators can review medical bills for accuracy, ensuring fair charges. Critics argue that debt cancellation relies on taxpayer funds and provides short-term relief instead of long-term solutions. Addressing the root causes of high medical costs is essential for sustainable health care reform.

Empowering employees and legal protection

Legal expertise can help navigate complex regulations and protect participants from unjust charges. Educating employees about their health care options and rights empowers them to make informed decisions and avoid unnecessary expenses.

Resources such as health savings accounts and flexible spending accounts can help Americans prepare for out-of-pocket costs. Employers can maximize HSAs’ benefits and encourage participation through matching contributions, automatic enrollment and default contribution amounts.

Providing ongoing education about HSAs’ benefits and effective use, including workshops, informational materials and one-on-one consultations, is crucial. Aligning HSA-capable health plans with other benefits offerings that emphasize savings and preparation, such as the 401(k) enhance their value.

Financial preparedness and cost transparency

Many Americans are unprepared for unexpected medical expenses, which exacerbates the economic burden of health care. Promoting financial resilience through education and resources is vital. Financial wellness programs can teach employees about budgeting, saving for emergencies and managing debt. These programs strengthen employees’ financial foundation.

Reference-based pricing and price transparency can achieve cost savings for both plans and participants. Insufficient wage growth relative to rising medical expenses creates financial strain, highlighting the need for better financial preparedness.

Sustainable health care

Plan administrators have a fiduciary responsibility to manage plan assets prudently and advocate for cost-effective healthcare delivery to reduce unnecessary expenses and taxpayer burdens.

Collaborating with health plans, third-party administrators, insurers and cost management companies can create a more efficient health care system. Strategies include coordinating administrative and advocacy services, using legal expertise and promoting financial wellness. A comprehensive approach focusing on reducing health care expenses and improving financial resilience is essential. Proactive measures can create a more equitable and sustainable health care system, benefiting both employees and employers.

The path forward for medical debt cancellation

Addressing medical debt requires a multifaceted approach that combines immediate relief with long-term solutions. Should the Medical Debt Cancellation Act become law at some future date, it may offer a temporary respite. But sustainable strategies that don’t simply shift costs to future generations must focus on comprehensive coverage, transparency, plan designs and financial preparedness.

Empowering employees through education and legal protection, leveraging HSAs and promoting wellness, health and wealth, are critical steps toward achieving resilience.

By adopting these strategies, plan sponsors can create a more equitable and sustainable health care system, ultimately benefiting both employees and employers. Through proactive measures and a commitment to reducing health care expenses, we can alleviate the financial burden of medical debt and promote a healthier, more financially secure future for participants.

Christine M. Cooper is CEO of aequum. Contact her at [email protected].

Jack M. Towarnicky is a member, aequum, where he provides plan drafting and compliance services to employers and plan sponsors. Contact him at [email protected].