Dr. Claudia Henschke, Chief of the Division of Chest Imaging, standing at right, and CT Supervisor Gus Daphnis prepare Patricia Dowds for her lung scan at New York Hospital - Cornell Medical Center, Friday Aug. 12, 2005. The test, called a spiral or helical CT scan, detects lung abnormalities as small as 5 millimeters, less than a fifth of an inch. (AP Photo/Richard Drew) (Richard Drew/AP)

More than three decades ago, emergency rooms could kick you out if doctors didn’t think you could pay. You might be suffering from a stroke, a gunshot wound or a broken spine, but if your insurance wasn’t good enough, many hospitals could slam the door in your face. This hot-potatoing of patients caused gruesome and unnecessary deaths before the practice was outlawed in 1986. Today, if you go to the hospital with an emergency, doctors pretty much have to treat you. If you have insurance, great. But even if you can’t pay, they’ll patch you up all the same. You’ll just leave the hospital with potentially crippling medical debt.

Because of the health-insurance expansions under the 2010 Affordable Care Act, millions fewer Americans are likely to face that debt. The nation's uninsured rate has fallen to a record low, the Centers for Disease Control and Prevention recently reported. Yet the surprising reality is that while uninsured people face massive financial risks if they go to the hospital — and millions of them remain — people with health insurance also pay a big financial price.


To get a better sense of this, researchers recently took an unprecedented look at the health and financial records of Californians who went to the hospital between 2003 and 2007. They ran credit checks on the roughly 1 million patients to get a sense of their financial situation before and after their hospitalization. A draft of the paper, authored by Carlos Dobkin of the University of California at Santa Cruz, Amy Finkelstein and Raymond Kluender of MIT, and Matthew Notowidigdo of Northwestern University, was published last week by the National Bureau of Economic Research.

The researchers focused on people who had not been to the hospital in at least three years. Pregnancies were excluded. Among working-age adults, the most common reasons for hospitalization involved problems with the circulatory system (heart attacks, for instance, or stroke) or problems with bones and joints (sprains, fractures, etc.). The average hospital stay lasted about four days and had a sticker price of about $45,000. (These bills are typically bargained down a lot in negotiations later on.)

As you may expect, hospital stays had a dramatic effect on the uninsured, who quickly fell into debt. On average, people without insurance accumulated nearly $6,200 in medical bills that they couldn’t pay. About 10 percent had medical debt in excess of $20,000 because of their hospital stay. These numbers all represent overdue bills that the hospital sent to a collection agency (at which point the debt became visible on people’s credit reports.)

By contrast, insured Americans owed about $300 four years after the hospital stay.


Here are some more charts showing how a trip to the hospital affects people without insurance. What’s immediately interesting is that the uninsured don’t seem to be able to pay the debt back. Even four years after they were in the hospital, the uninsured still owe just as much money as they ever did. The debt just lingers.

“If you're uninsured, you rack up a lot of medical bills — but in the end, you’re still not paying those bills,” co-author Matthew Notowidigdo, an associate professor of economics, said.


So who pays? Hospitals. In a separate study from 2015, Notowidigdo and colleagues Craig Garthwaithe and Tal Gross found that hospitals lose a lot of money treating the uninsured. They discovered that in the short term, when a hospital is faced with a sudden increase in uninsured patients, the hospital’s own profit margins go down. In the long term, some of this cost is probably passed onto others, in the form of higher bills for other patients, or lower salaries for hospital employees. These broader repercussions are harder to measure, though.

This is an important point to keep in mind now that more and more Americans have health insurance thanks to the Affordable Care Act. It’s not just the patients themselves who benefit from gaining coverage. Hospitals, in turn, lose less money on treating the uninsured — and indirectly, this probably affects how much everyone else spends on health care.

The new study published by the NBER last week also highlights a major problem with the way Americans insure themselves against bad luck and bad health. It's true that people with health insurance are much less likely to fall into major debt because of a hospital stay — but a hospital stay still has tremendous effects on a person's financial stability. That's what the researchers found when they turned to a huge national health and retirement survey that included detailed questions about earnings and health spending.

This revealed that for insured adults between ages 50 and 64, out-of-pocket medical expenses increase by more than $1,000 a year following a hospitalization. Furthermore, annual incomes fall by over $7,000, a decline of about 17 percent, probably because the health crisis causes people to work less or to lose their jobs. Social-security payments make up for some but not all of the lost income.


As the researchers note, other countries manage this problem better. Denmark, for instance, has a system of sick pay and disability insurance that more or less completely compensates people if they are unable to work because of a sudden health crisis.

“By design, however, insurance in the US covers (a large portion of) medical expenses and relatively little of the earnings decline,” the researchers write. “Employer provision of sick pay and private disability insurance is fairly sparse, and public disability insurance is available only after a lengthy application and approval process.”

These are problems worth thinking about. If politicians want to prevent Americans from being bankrupted because of their hospital bills, medical insurance is just part of the solution.