Medical debt is a significant issue weighing on American workers. According to Financial Health Network’s recent survey of U.S. employees, 37% of employees report having medical debt and 32% of respondents say they had trouble paying medical bills in the last 12 months. Medical debt can also force tradeoffs that erode the income families depend on for food, housing, education, and other necessities. Around half of respondents report reducing spending on basic needs, such as food and clothing, to pay their medical bills.
For employees, the financial distress caused by medical debt can impact productivity and ability to work. Nearly 4 out of 5 employees with high financial stress say medical debt distracts them from work, and 50% of workers who report debt as a source of stress say they spend at least one hour per week at work dealing with debt-related issues (such as contacting creditors).
Employers have emerged as potential change-makers in the national debt crisis, as well as in the financial health space. Today, 62% of employers feel extremely responsible for their employees’ financial wellness, compared with just 13% in 2013. This increased responsibility felt by employers to improve financial health for their employees, coupled with the close ties between insurance and employment in the U.S., position employers to make a meaningful difference for workers facing medical debt.
Employer-Sponsored Health Insurance Is Not Always Enough
Health insurance plans don’t always provide adequate financial protection for U.S. workers. Research shows that 26% of adults with employer-sponsored plans are considered underinsured and vulnerable to costly medical bills. Nearly a quarter (24%) of underinsured adults report they do not visit a doctor when they have a medical issue, and 25% do not fill necessary prescriptions. When cost concerns disincentivize receipt of needed care, it can result in more costly care down the road and ultimately drive higher health insurance costs for employers. Increased cost-sharing can also lead to costly medical bills and medical debt for employees, creating negative long-term financial effects that include eroded savings, lowered credit scores, greater credit card debt, and even bankruptcy.
Employers Can Take Steps To Both Reduce and Prevent Medical Debt
While there are a number of potential policy and health plan design solutions that can be implemented to prevent medical debt, there are a number of immediate and tactical steps employers can take to support their employees in reducing and preventing medical debt.
1. Understand the financial vulnerabilities of their employees, particularly when it comes to healthcare needs and costs. A Healthcare Social Equity Audit can help employers determine employees’ financial risk for large insurance claims, especially their most financially vulnerable employees. Companies can take the plan selected by each employee, add the in-network deductible and out-of-pocket limit, and then divide by the employee’s annual income to compare how much financial risk employees are carrying.
2. Educate employees about the basics of insurance and explain out-of-pocket expectations, both upfront and continuously as needed. Most U.S. adults have an incomplete understanding of basic insurance terms, including annual out-of-pocket and deductible amounts, and report difficulties using their health insurance. Employers have a responsibility to ensure their employees are aware of price transparency information and decision-support tools to empower the choices their employees make.
3. Provide services and benefits to help employees manage healthcare costs. Some employers are already offering benefits such as loans or hardship funds that offer short-term grants for unexpected expenses. Additionally, employers can contribute towards health savings accounts (HSAs) and health reimbursement arrangements (HRAs) that are often paired with high deductible health plans (HDHPs) to assist employees in paying for or reimbursing eligible out-of-pocket expenses.
Financial Health Network research reveals that 68% of employees state debt-related financial wellness benefits are important for an employer to offer. The top debt-related benefits desired by employees are:
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- Employer contributions to an emergency savings account.
- Free access to financial planning apps or websites (budgeting and savings tools and calculators).
- Free personalized coaching sessions with a financial professional.
- Emergency grant funds to help with an unforeseen or catastrophic event or illness (medical debt that is unplanned and unexpected).
- Free financial education resources.
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4. Offer insurance plans based on employees’ financial circumstances and healthcare needs. One way to do this is to vary employer contributions to premiums so that lower-wage employees pay less compared with higher-wage employees. Bank of America varies its medical premium contribution by annual pay level, with larger subsidies for those earning less. Income-based cost-sharing can be cost-neutral to the employer through a tiered structure, as JPMorgan Chase has done.
Research shows when employers address the financial health of their workforce, their actions can increase productivity, job satisfaction, and retention – all while reducing employee stress, absenteeism, and even health insurance costs. Employers have a critical role in preventing medical debt and designing debt-related benefits to match employee needs.
To learn more about the actions employers can take to improve the well-being and financial health of employees, explore the “Preventing Medical Debt” report series that includes recommendations for employers, insurers and hospitals and health systems, or email uamin@finhealthnetwork.org to learn more.
