For five years from 2007 to 2012, Criterion, with Good Capital and the Access Project, examined the root causes of medical debt and designing an innovative approach to leverage financial systems to alleviate the burden.

Initially we began this exploration by looking at the tip of an iceberg: medical debt. At the time, one in five Americans held medical debt; this debt is one of the leading contributors to bankruptcy, and it causes people to access healthcare late and in forms that are much more costly and disruptive to their lives, to providers, and to society as a whole. And medical debt is not just a problem of the uninsured. Three out of five (62%) of all adults with medical bills or debt problems said they or their family member were insured at the time the debt was incurred.

However, we discovered that debt is symptomatic of a set of broader issues connected to the uncovered costs of healthcare.   As we realized this, we reframed our approached the work. While $70 billion in bills was never paid in 2006, a further $265 billion was paid out of pocket by consumers. Billions of dollars are changing hands outside of private and public insurance, yet the systems and structures that manage these “uncovered” costs are relatively incomprehensible to even those inside healthcare. These out-of-pocket expenses are treated as an exception to the insurance market, making their tracking and management complex. Receivables management, bad debt, charity care, collection agencies, and healthcare card services each represent systems of pricing and payments that add to this complexity.

In the end, the players in the system treat the portion of healthcare paid outside of public programs and private insurance as an exception to the norm, an aberration in an insurance-dominated market. And yet the exception represents 15 percent of the healthcare market. In financial systems, exceptions create inefficiencies and friction and therefore cost more but also represent market opportunities. In short, an underlying systemic issue preventing access to appropriate healthcare is the current irrational characteristics of a cash market within healthcare. This issue affects all consumers in the healthcare market but has a disproportionate impact on those most economically vulnerable in our society. The presenting issue of medical debt began our exploration, but our analysis has led us to see and reframe this as a social issue rooted in a broader market failure.

Our discovery and exploration of the implications of an irrational cash market in healthcare are presented in our seminal Cash Market Report.