Healthcare debt continues to be the leading category of debt collection, according to a new ACA International/Ernst & Young study, “The Impact of Third-Party Debt Collection on the National and State Economies.” Based on data from 2013, the survey provides a snapshot of national and state-level collection efforts. ACA had commissioned a similar study, released in February 2012, using data from 2010.
The third-party debt collection industry employs thousands of people as collection professionals. They collect on past-due accounts referred to them by various credit grantors, such as credit card issuers, banks, retail stores, hospitals and other healthcare services, or by federal, state and local governments. While many associate consumer debt with typical consumer loans such as those for mortgages, cars and credit cards, survey respondents reported that the majority of debt collected was healthcare related debt.
The ACA/Ernst & Young study, released in July 2014, shows that healthcare-related debt (from hospitals, physician groups and clinics) accounted for nearly 38 percent of all debt collected in the industry. Approximately 27 percent of the total healthcare debt collected was from hospitals, while physician groups have 7.1 percent and clinics have 4.2 percent.
However, the percentage of healthcare debt relative to total debt collected declined in 2013 compared to 2010. Healthcare-related debt was 52.2 percent of the total debt collected in2010, followed by credit card/financial debt at 20 percent, according to the survey released in February 2012. Tom Gavinski, vice president of healthcare at I.C. System Inc. in St. Paul, Minn., attributes the change in the healthcare collection rate found in the survey to the fact that the amount of credit card debt was growing at the same time healthcare debt was on the rise in 2013.
According to the survey, credit card/financial debt was 12.9 percent of debt collected in 2013. “The healthcare market is really growing,” Gavinski said. “It has to do with more so the financial services retail market. Coming out of the recession, people cut back on their spending. Credit card debt plummeted in 2010. Healthcare debt is continuing to grow, but it hasn’t grown as much as credit card debt between 2010 and 2014.”
According to the Consumer Financial Protection Bureau, debt from revolving credit products (primarily credit cards) grew from $843 billion to $857 billion from the end of 2011 to May 2013. Gavinski, whose agency collects both healthcare and credit card debt, said he wouldn’t have expected the decline in the healthcare collections rate shown in the survey. “We’re continuing to market very extensively in healthcare because we still see it as a growing market, but also we continue to focus on credit card debt,” he said.
Early-Out and Bad Debt
Overall, the data in the most recent survey shows that the health of national and state economies in the U.S. continues to rely on the recovery of rightfully owed consumer debt. However, the data also shows that only a small percentage of outstanding consumer debt was actually recovered in 2013. Third-party debt collectors received approximately 1 billion consumer accounts from creditor clients in 2013, with a face value of $756 billion.
However, only 7 percent ($55.2 billion) was actually recovered. A majority (71 percent) of the total debt collected in 2013 was bad debt, which consists of receivables aged 90 days or more. This debt has typically been written off by the creditor as uncollectible and is then turned over to third-party agencies for collection. Early-out debt, representing 29 percent of all debt collected, consists of receivables aged 90 days or less. It typically allows the consumer a chance out of the collection process by resolving a delinquent debt before it goes into default or gets written off.
The latest Hospital Accounts Receivable Analysis (HARA) survey, based on data from the first quarter of 2014, finds that U.S. hospitals continue to improve uncollectibles’ performance by reducing write-offs, which includes gross dollars of bad debt and charity care divided by the total year-to-date gross revenue. The benchmark goal is to limit charity and bad-debt write-offs to a combined 5 percent or less of total gross revenue. U.S. hospitals edged closer to the goal in the first quarter by reducing charity and bad debt write-offs to 5.09 percent of total first quarter gross revenue.
According to the HARA survey, U.S. hospitals are well poised to achieve the uncollectibles benchmark in 2014. Gavinski believes the majority of healthcare debt is bad debt, but there are also self-pay accounts handled by collection agencies.
According to the HARA survey, self-pay is defined as “individuals, institutions, or corporations assuming the entire responsibility for payment of hospital and medical bills that otherwise might be covered by an insurance policy.” Gavinski said, “Healthcare collections [companies] like us are going to see more and more hospitals outsource their selfpay because the volumes are increasing and they don’t have the capacity to handle it.”
He noted that self-pay debt requires a different collection approach that is more patient-friendly. “Self-pay will be much easier to collect because it is aged less,” Gavinski said. “The accounts aren’t quite as old as the bad debt.” More information: www.acainternational.org/impact