What is Medicare Bad Debt and Why Must It Be Protected?
Medicare Bad Debt is, at its core, a critically important backstop for seniors and the disabled. It ensures that Medicare beneficiaries who may live on fixed incomes and can’t afford their portion of cost-sharing, like deductibles and co-pays, will retain access to the essential health care services they need and deserve.
The Medicare Bad Debt program is a fundamental component of the program’s benefits, and cuts to these payments are clearly reductions to the central promise to beneficiaries. Preservation of the full Medicare payment – comprising of the government’s payment, the beneficiary’s cost-sharing amount, and the bad debt payment when low-income seniors are not able to pay their share – is key to protecting seniors right to have access to necessary medical care..
Under current policy, the Medicare program reimburses hospitals and other care providers only a portion – 65 percent – of the uncollectible deductible and coinsurance amounts they owe. Cutting these payments further will threaten the viability of the hospitals caring for the most vulnerable members of our communities and potentially reduce their health options.
How Does the Reimbursement Process for Providers Work?
It is important to note that Medicare bad debt payments to providers are not automatic. In fact, hospitals are eligible to receive payment only if they meet rigorous government-set criteria – a process that can often take years to complete. These criteria are legally required under Medicare and ensure that every reasonable step has been taken to collect the cost-sharing from the beneficiary directly. When that process fails, then, and only then, are providers eligible to receive the bad debt payment from Medicare.
But even here there’s a Catch-22 working against hospitals. By law, hospitals cannot collect cost-sharing from those dually eligible for Medicare and Medicaid, yet 60 percent of hospital bad debt is attributable to those very dual-eligible patients. That’s because states will often set Medicaid payment rates that satisfy the minimum payment requirement and deny covering the beneficiary copayment. So, the hospital has zero recourse other than a Medicare bad debt payment, which – as noted above – is only 65 percent of the amount owed. Those who argue that Medicare should not pay bad debt because hospitals don’t work hard enough to collect it either are unaware of – or seem to ignore – how this policy severely handicaps hospitals.
Why Are We Talking About Medicare Bad Debt Again?
Once again, some policymakers and influencers have targeted Medicare Bad Debt for cuts, or even worse, full elimination. Their flawed rationale assumes that hospitals don’t do enough to collect cost-share from seniors and the disabled, while the private sector doesn’t reimburse providers for bad debt on cost sharing so why should Medicare?
First, hospitals are eligible for bad debt payments ONLY after following the rigorous regulatory collection process described above, a process which itself can subject hospitals to a certain amount of criticism for even pursuing these payments from seniors and the disabled. Or, for dual eligibles hospitals cannot collect the cost sharing.
Beyond that, it ignores a fundamental difference between Medicare and private insurance: under Medicare’s fixed price system, the government determines both the amount Medicare should pay – which includes both the payment amount from Medicare and the amount of the patient’s cost-sharing responsibility. The total payment is all inclusive and there is no negotiation. Private insurers and hospitals, on the other hand, establish payment rates through arms-length negotiation, which enables them to account for inevitable unpaid cost-sharing from policyholders.
The Medicare Bad Debt program helps ensure almost full payment for hospital services to seniors when they are unable to pay the cost-share amount set by the government. It’s that simple. And let’s not forget that even full payment falls far below the cost of care – 10 percent below according to MedPAC.
Further cutting this critical backstop will put hospitals in an untenable position. It is tantamount to an across-the-board reduction that hurts all community hospitals and the seniors and disabled they serve – rural and urban, teaching and non-teaching alike. Hospitals that treat disproportionally high levels of low-income Medicare beneficiaries, in particular, would further struggle to make ends meet and could be forced to cut vital services to patients. That may be one reason why reductions to Medicare bad debt payments have not been the subject of any recommendations by MedPAC or recent Congressional hearings.
Medicare bad debt payments may seem to be an easy target for cuts – until one fully understands what’s at stake and why these payments matter. They are, in fact, foundational to maintaining access to care for seniors. Any potential change in policy must fully examine the implications for seniors and disabled Americans who rely on Medicare. That has not yet happened.
