For most Americans, affordability is about tradeoffs. Want the car with the tricked out rims and sweet sound system?
Then expect to add another few months to your payment plan and get rid of the chrome package. Need a three bathroom home? Consider dumping the upgraded faucets and add a few dollars to your monthly mortgage.
Unlike home and auto financing, healthcare’s traditional one-size-fits all lump sum financial model does not have room for tradeoffs. With a fixed cost of care that can often be exorbitant for most patients, there is little ability to negotiate on procedures or terms to make the final formula more affordable. At a time when the cost of care is steadily rising and patients are responsible for more and more of their final bill, that is causing more people skip treatment altogether or stick hospitals with unpaid bills.
This is because at its core, healthcare finance has both a cost and affordability problem. While intimately connected, they are not the same. Cost is undoubtedly the number one challenge with healthcare in America. And, some would argue it has reached the breaking point. However, what is rarely discussed is affordability and how it relates to healthcare financing. When you look at similar large ticket items like cars or homes, affordability levers like payment terms and amounts helps alleviate the pressure of cost for consumers. But in the world of healthcare, lump sum payment requirements and inflexible payment plans remove the flexibility that would make the cost of care more affordable.
Fortunately, a new breed of innovative healthcare providers are blazing a new path forward, adopting cutting edge financial technologies that acknowledge the cost burden of modern healthcare and creating flexibility for patients.
The Cost of Care
The prevalence of high deductible insurance plans place the financial burden for healthcare on patients and away from traditional insurance company payers. Consequently, out of pocket healthcare costs are rising dramatically. A TransUnion analysis showed that patient balances after insurance have grown 67% from $467 to $781 between 2012 and 2017. And an astounding one in two Americans face a $1,000 out of pocket healthcare bill.
That dollar amount puts the cost of healthcare squarely into the realm of auto and mortgage payments. Today the average monthly mortgage payment is $900 and the average auto monthly expense is $300. Making matters worse, 46% of Americans would find it difficult to find $400 to pay for medical bills. And, while the pundits beat the drum about stashing away for a rainy day, 2 in 3 households have less than $1,000 in savings.
Not surprisingly, healthcare affordability concerns weigh heavily on patients and, unfortunately, have an impact on clinical care. Recent studies show that most people are more concerned with paying for care if they get seriously ill than actually getting ill. A whopping 40% of Americans have skipped a recommended test or treatment due to concerns about affordability. As the politicians continue to debate the problem of healthcare in American, access and affordability of healthcare continues to be the number one issue Americans worry most about -- higher than crime, government spending and drug use.
Healthcare Billing: Then and Now
Much of this is due to the inflexibility of healthcare financials. The traditional hospital one size fits all model of billing relies on a one time lump sum payment or short term payment plan for outstanding bills. After analyzing over 17M patient bills and billions of dollars in medical payments, Simplee found the ideal patient payment amount to be $125. This is the amount nearly all patients are comfortable and able to pay.
But with hospital bills averaging thousands of dollars, the typical ten payment plan offered by most hospitals is often is twice as big - or sometimes even more - than this optimal payment size. The result is that hospitals are only recovering 30-40 cents on the dollar, leaving them in the lurch or forcing them to rely on expensive collection agencies that only hassle and anger patients in the process.
Fortunately, forward thinking hospital systems are taking a cue from fintech’s inclusionary approach to finance. Hospitals are beginning to realize that they can treat the patient's physical well being while respecting their financial well being. By advancing a solution aimed at the greater good - both medical and financial outcomes - healthcare systems can build a double bottom line approach.
These health systems are embracing technologies like data analytics and machine learning to help address affordability. Through historical and alternative data gathering, hospitals can identify patients that are more likely to pay their bill in full or need a payment plan before they even book a procedure. The hospital can then communicate an anticipated cost and offer appropriate payment plans customized to each patient.
This allows hospitals to break out of the historical model and instead build plans with up to 60 payments to reduce the monthly obligation and increase the likelihood of repayment. A number of systems we work with are seeing an increase in repayment up to 10% and making patients happy along the way. New data shows that giving patient’s payment plan options to match monthly affordability dramatically increases patient satisfaction. In fact, Simplee clients who have received tailored payments show a 20%+ increases in NPS.
It is increasingly obvious that a patient’s sense of affordability not only impacts their family budget, it directly speaks to their care decisions and the eventual hospital bottom line. As these early healthcare innovators prove out the use of new technologies to create flexibility and personalization for patients that improve affordability, more systems will employ them. This turn to a discussion about the affordability of care - not just the cost of care - is critical to achieving critical mass for health systems and closing America’s healthcare affordability gap.