LOOKING BACK: Judge's Ruling on Healthcare Reform May Greatly Impact Medical Debt and Collection

When a federal judge in Virginia ruled that the government cannot require Americans to buy health insurance, he may have dashed health care providers’ hopes of getting uncompensated care expense under control.

Two other federal judges have upheld every aspect of the healthcare reform bill — Affordable Care Act — that became law last March. But legal experts say U.S. District Court Judge Henry E. Hudson’s ruling means the U.S. Supreme Court will likely decide the Constitutionality of the individual responsibility mandate.

In the meantime, all other provisions of the law, such as the requirement that employers provide health care coverage to employees or pay a penalty, can take effect as scheduled. Some other elements of the law are already in place, including the removal of lifetime limits on coverage and the right for unemployed young adults up to age 26 to remain on their parents’ insurance plans.

But such fundamental changes to the nation’s health care system costs money. And if the high court upholds Hudson’s ruling, health care experts say fewer Americans will be insured than expected and people with insurance won’t save as much on health care costs.

“If this lawsuit were to eventually succeed in stripping out individual responsibility from the new health care law, consumers will be the ultimate losers,” said Larry McNeeley, health care advocate for U.S. PIRG. “Insured families would be left carrying more than $1,000 a year in higher insurance premiums because too many of the uninsured will continue to use the Emergency Room as their primary care. The market for individual health insurance, a key coverage option for consumers and the millions of self-employed Americans who own their own business, would also see increased instability and higher rates.”

Linda Blumberg, a senior fellow at the Urban Institute’s health policy center, said the individual mandate requirement was included in the Affordable Care Act to bring more healthy people into the insurance pool and remove insurers’ need to discriminate against sick people to protect themselves against losses. If the high court strikes down the mandate, insurers would challenge other parts of the law, beginning with the requirement that they accept everyone who applies for coverage.

“The idea (with the mandate) is to make coverage affordable and accessible regardless of health,” Blumberg said. Striking down the mandate compromises the ability of the law to end discrimination against people with preexisting conditions that come up in future, she said.

Blumberg said uncompensated care costs still will decline if the individual responsibility mandate is banned, but not as much because the number of newly insured people will be significantly lower and health insurance premiums will be higher than they would be with the mandate.

While this may mean more self-pay volume for debt collectors in the medical receivables space, success in collecting that debt depends on a variety of factors, including how quickly and meaningfully the economy improves.  Kaulkin Ginsberg Director Michael Lamm noted that on a scale of financial priorities, medical debt is near the bottom because unpaid medical debt does not have the direct impact on consumers’ daily lives that mortgage, auto and credit card obligations do.

“If you can’t pay your mortgage, you will be out of home,” Lamm said. “With credit cards, they need that liquidity or credit line open to buy things.”

Chris Wunder, president of medical ARM firm Receivables Outsourcing Inc., (ROI) told insideARM.com that he is not overly excited or discouraged by the prospect of more uncompensated care medical debt to collect.

Wunder said self-pay receivables volume has increased in recent years and he expects that trend to continue.  But liquidation rates have diminished, he said, requiring significant changes to how accounts at his agency are scored and segmented. ROI also changed its telephone call and letter outreach strategy, he said.

“I think like most people, we are looking closer than ever at how to be as efficient as possible,” Wunder said. “I’m cautious…There are so many moving parts, I’m going to deal with things as they come.”