From Health Care

Couple Makes Millions Off Medicaid Managed Care As Oversight Lags

CHULA VISTA, Calif. — Norma Diaz and her husband, Joseph Garcia, have dedicated their careers to running a nonprofit health insurer that covers some of California’s neediest residents.

For three decades, they have worked for a Medicaid managed-care plan, Community Health Group, serving nearly 300,000 poor and disabled patients in San Diego County under a state contract funded entirely by taxpayers. They’ve earned above-average ratings for patient care.

And in the process, they’ve made millions of dollars.

Together, Diaz and Garcia made $1.1 million in 2016 and received more than $5 million since 2012, according to the health plan’s tax returns and company data. Diaz’s compensation as CEO exceeded the pay of several peers at bigger plans in 2016.

Garcia, married to Diaz since 1997, is an outside consultant who serves as chief operating officer. Their health plan, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average.

“This is not only a conflict of interest but egregious overpayments,” Frank Glassner, chief executive of Veritas Executive Compensation Consultants in San Francisco, said after hearing of the payments from a reporter and reviewing the tax returns. “It’s the family-and-friends plan.”

The arrangement at this midsize California health plan raises broader questions about government oversight as states award billions of dollars in public money to private plans to cover patients on Medicaid, the federal-state insurance program for the poor.

Evidence is mounting that Medicaid’s rapid expansion under the Affordable Care Act has far outstripped the government’s ability to monitor the taxpayer money it turns over to insurers. In California, for instance, some health plans have reaped outsize profits, so large the state is now trying to claw back billions in overpayments, a recent Kaiser Health News investigation found.

Medicaid enrollment has soared to 74 million Americans, from 58 million before the ACA rollout. About 75 percent of them are assigned to plans like Community Health

Group, which receive a flat monthly fee per person to handle their medical care.

Increasingly, states have embraced managed care in hopes of controlling Medicaid costs. Insurers could see further growth as the Trump administration and Congress seek to cut federal spending on Medicaid and shift more of the fiscal burden onto states.

These managed-care contracts can be highly lucrative for the companies involved and their executives, like Diaz and Garcia. Any money left over after spending on medical care and administration is profit or “surplus,” depending on whether the plan is nonprofit.

Federal auditors have warned for years about lax oversight of Medicaid money, a task that primarily falls to states. A 2017 report found that even as managed care has grown in importance, states have fallen behind in collecting essential data from plans.

In the past year alone, government auditors and consultants criticized Illinois, Kansas and Mississippi for poor supervision of Medicaid insurers. Illinois auditors said the state didn’t properly monitor $7.1 billion paid to Medicaid plans in fiscal year 2016, leaving the program unable to determine what percentage of money went to medical care as opposed to administrative costs or profit.

An examination of Community Health Group in California points to systemic flaws in oversight.

For instance, California officials said they do not examine the companies’ public tax filings. As a social welfare nonprofit, Community Health does not pay taxes, but it is required to file returns with the federal government, known as 990s, which provide basic information about operations and finances.

In a review of Community Health’s recent returns, KHN discovered that the company falsely denied — on the 2015 and 2016 forms — that it was doing business with a family member.

In response, the insurer immediately said that was an error and it was amending the returns to reflect its relationship with Garcia. The company had disclosed the relationship in earlier years.

California’s Medicaid agency, in a statement, said insurers are allowed to set their own conflict-of-interest policies. Asked specifically about Community Health Group, it referred further questions back to the health plan.

Likewise, the state’s chief insurance regulators at the Department of Managed Health Care said in a statement that insurers are not required to submit information on executive compensation and the state does not set standards for that. They do review the pay of outside contractors.

Diaz and Garcia, sitting together at a conference table in the CEO’s office on a recent weekday, said they were proud of their long record of helping disadvantaged people. The couple insists there’s nothing wrong with mixing work and family.

Community Health Group, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average. (Chad Terhune/California Healthline)

Diaz, 56, said her husband reports not to her but to a fellow executive, the associate CEO, and his consultant’s role was approved by the health plan’s board. “I don’t feel for me it’s a conflict of interest because he was here for many years long before we ever got married, so we got used to a working relationship,” she said.

Garcia, 66, served as the company’s on-staff chief operating officer for about 15 years and then switched in 2011 to the role of consultant (acting as COO), which ultimately raised his pay. He said the couple has never tried to hide their personal relationship from the state or anyone else.

“I understand from the outside someone might say ‘Oh my God. That’s a conflict.’ But it’s not. It’s irrelevant that I’m her husband,” he said. “I don’t see how it’s a misuse of public funds. The expense for a chief operating officer would be made no matter what, and my compensation is fair.”

His total compensation reached $487,386 in 2016, according to the insurer. From 2012 to 2016, the health plan paid him a total $2.3 million.

Under his consulting agreement, Garcia is paid $275 an hour and can make as much as $572,000 annually, according to documents obtained by KHN through a public records request. The health plan had requested the information be kept confidential, but the state released it.

In September, regulators at the managed-care department asked Community Health Group how Garcia’s pay was determined. The company submitted a pay range for chief operating officers that it said was drawn from industry surveys.

Community Health said it picked the maximum figure in the range, $442,863, to reflect Garcia’s “many years of experience in health plan operations.” It then increased his pay range by 30 percent because it said Garcia doesn’t receive benefits. The plan called his current salary — which in 2016 fell below the maximum allowed — “both fair and competitive.”

An agency spokesman said the state’s review of the matter is closed.

In early 2012, the insurer hired a new executive as COO, but he left the following year. Garcia stayed on as a consultant during that time at roughly $400,000 annually, then resumed his COO duties. His current consulting agreement runs through 2021.

“We don’t want to lose Joseph. He has a tremendous amount of knowledge,” said Albert Vitela, a retired San Diego police detective who is the plan’s co-founder and chairman.

As for Diaz, she has received $2.8 million in salary, benefits and other compensation over the five years ending in 2016. Her 2016 pay of $604,502 exceeded that of the CEO of the Inland Empire Health Plan in Southern California, which has four times the enrollment.

(Story continues below.)

Last year, federal auditors examined compensation for the 133 top paid executives at managed-care organizations in seven states, focused on health plans that get more than half of their revenue from Medicaid.

For 2015, the top executives earned $314,278, on average — more than double what state Medicaid directors earned, according to the report. Auditors didn’t find major differences in pay between for-profit and nonprofit Medicaid plans.

Executive compensation has risen as Community Health Group recorded hefty profits.

State officials had raised the rates paid to Medicaid plans in anticipation of the Affordable Care Act rollout in 2014, but the costs for newly insured patients weren’t as high as predicted. After the KHN investigation into insurer profits published in November, California’s Medicaid director, Jennifer Kent, vowed to recoup billions of dollars in excessive payments from insurers in coming months.

From 2014 to 2016, Community Health Group recorded profits of $344.2 million, according to state data obtained and analyzed by Kaiser Health News. Diaz said her insurer expects to return more than $100 million to the Medicaid program.

Robert Stern, a government ethics expert and former general counsel of California’s Fair Political Practices Commission, welcomed the scrutiny of Medicaid profits. But he said the business practices at Community Health Group suggest there is much more to be done.

“Taxpayer money should be spent as wisely as possible,” Stern said. “It’s not their money. It’s our money.”

Do you have a Medicaid managed care story? Contact Senior Correspondent Chad Terhune at cterhune@kff.org or via Signal at 657-226-0625

Couple Makes Millions Off Medicaid Managed Care As Oversight Lags

CHULA VISTA, Calif. — Norma Diaz and her husband, Joseph Garcia, have dedicated their careers to running a nonprofit health insurer that covers some of California’s neediest residents.

For three decades, they have worked for a Medicaid managed-care plan, Community Health Group, serving nearly 300,000 poor and disabled patients in San Diego County under a state contract funded entirely by taxpayers. They’ve earned above-average ratings for patient care.

And in the process, they’ve made millions of dollars.

Together, Diaz and Garcia made $1.1 million in 2016 and received more than $5 million since 2012, according to the health plan’s tax returns and company data. Diaz’s compensation as CEO exceeded the pay of several peers at bigger plans in 2016.

Garcia, married to Diaz since 1997, is an outside consultant who serves as chief operating officer. Their health plan, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average.

“This is not only a conflict of interest but egregious overpayments,” Frank Glassner, chief executive of Veritas Executive Compensation Consultants in San Francisco, said after hearing of the payments from a reporter and reviewing the tax returns. “It’s the family-and-friends plan.”

The arrangement at this midsize California health plan raises broader questions about government oversight as states award billions of dollars in public money to private plans to cover patients on Medicaid, the federal-state insurance program for the poor.

Evidence is mounting that Medicaid’s rapid expansion under the Affordable Care Act has far outstripped the government’s ability to monitor the taxpayer money it turns over to insurers. In California, for instance, some health plans have reaped outsize profits, so large the state is now trying to claw back billions in overpayments, a recent Kaiser Health News investigation found.

Medicaid enrollment has soared to 74 million Americans, from 58 million before the ACA rollout. About 75 percent of them are assigned to plans like Community Health

Group, which receive a flat monthly fee per person to handle their medical care.

Increasingly, states have embraced managed care in hopes of controlling Medicaid costs. Insurers could see further growth as the Trump administration and Congress seek to cut federal spending on Medicaid and shift more of the fiscal burden onto states.

These managed-care contracts can be highly lucrative for the companies involved and their executives, like Diaz and Garcia. Any money left over after spending on medical care and administration is profit or “surplus,” depending on whether the plan is nonprofit.

Federal auditors have warned for years about lax oversight of Medicaid money, a task that primarily falls to states. A 2017 report found that even as managed care has grown in importance, states have fallen behind in collecting essential data from plans.

In the past year alone, government auditors and consultants criticized Illinois, Kansas and Mississippi for poor supervision of Medicaid insurers. Illinois auditors said the state didn’t properly monitor $7.1 billion paid to Medicaid plans in fiscal year 2016, leaving the program unable to determine what percentage of money went to medical care as opposed to administrative costs or profit.

An examination of Community Health Group in California points to systemic flaws in oversight.

For instance, California officials said they do not examine the companies’ public tax filings. As a social welfare nonprofit, Community Health does not pay taxes, but it is required to file returns with the federal government, known as 990s, which provide basic information about operations and finances.

In a review of Community Health’s recent returns, KHN discovered that the company falsely denied — on the 2015 and 2016 forms — that it was doing business with a family member.

In response, the insurer immediately said that was an error and it was amending the returns to reflect its relationship with Garcia. The company had disclosed the relationship in earlier years.

California’s Medicaid agency, in a statement, said insurers are allowed to set their own conflict-of-interest policies. Asked specifically about Community Health Group, it referred further questions back to the health plan.

Likewise, the state’s chief insurance regulators at the Department of Managed Health Care said in a statement that insurers are not required to submit information on executive compensation and the state does not set standards for that. They do review the pay of outside contractors.

Diaz and Garcia, sitting together at a conference table in the CEO’s office on a recent weekday, said they were proud of their long record of helping disadvantaged people. The couple insists there’s nothing wrong with mixing work and family.

Community Health Group, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average. (Chad Terhune/California Healthline)

Diaz, 56, said her husband reports not to her but to a fellow executive, the associate CEO, and his consultant’s role was approved by the health plan’s board. “I don’t feel for me it’s a conflict of interest because he was here for many years long before we ever got married, so we got used to a working relationship,” she said.

Garcia, 66, served as the company’s on-staff chief operating officer for about 15 years and then switched in 2011 to the role of consultant (acting as COO), which ultimately raised his pay. He said the couple has never tried to hide their personal relationship from the state or anyone else.

“I understand from the outside someone might say ‘Oh my God. That’s a conflict.’ But it’s not. It’s irrelevant that I’m her husband,” he said. “I don’t see how it’s a misuse of public funds. The expense for a chief operating officer would be made no matter what, and my compensation is fair.”

His total compensation reached $487,386 in 2016, according to the insurer. From 2012 to 2016, the health plan paid him a total $2.3 million.

Under his consulting agreement, Garcia is paid $275 an hour and can make as much as $572,000 annually, according to documents obtained by KHN through a public records request. The health plan had requested the information be kept confidential, but the state released it.

In September, regulators at the managed-care department asked Community Health Group how Garcia’s pay was determined. The company submitted a pay range for chief operating officers that it said was drawn from industry surveys.

Community Health said it picked the maximum figure in the range, $442,863, to reflect Garcia’s “many years of experience in health plan operations.” It then increased his pay range by 30 percent because it said Garcia doesn’t receive benefits. The plan called his current salary — which in 2016 fell below the maximum allowed — “both fair and competitive.”

An agency spokesman said the state’s review of the matter is closed.

In early 2012, the insurer hired a new executive as COO, but he left the following year. Garcia stayed on as a consultant during that time at roughly $400,000 annually, then resumed his COO duties. His current consulting agreement runs through 2021.

“We don’t want to lose Joseph. He has a tremendous amount of knowledge,” said Albert Vitela, a retired San Diego police detective who is the plan’s co-founder and chairman.

As for Diaz, she has received $2.8 million in salary, benefits and other compensation over the five years ending in 2016. Her 2016 pay of $604,502 exceeded that of the CEO of the Inland Empire Health Plan in Southern California, which has four times the enrollment.

(Story continues below.)

Last year, federal auditors examined compensation for the 133 top paid executives at managed-care organizations in seven states, focused on health plans that get more than half of their revenue from Medicaid.

For 2015, the top executives earned $314,278, on average — more than double what state Medicaid directors earned, according to the report. Auditors didn’t find major differences in pay between for-profit and nonprofit Medicaid plans.

Executive compensation has risen as Community Health Group recorded hefty profits.

State officials had raised the rates paid to Medicaid plans in anticipation of the Affordable Care Act rollout in 2014, but the costs for newly insured patients weren’t as high as predicted. After the KHN investigation into insurer profits published in November, California’s Medicaid director, Jennifer Kent, vowed to recoup billions of dollars in excessive payments from insurers in coming months.

From 2014 to 2016, Community Health Group recorded profits of $344.2 million, according to state data obtained and analyzed by Kaiser Health News. Diaz said her insurer expects to return more than $100 million to the Medicaid program.

Robert Stern, a government ethics expert and former general counsel of California’s Fair Political Practices Commission, welcomed the scrutiny of Medicaid profits. But he said the business practices at Community Health Group suggest there is much more to be done.

“Taxpayer money should be spent as wisely as possible,” Stern said. “It’s not their money. It’s our money.”

Do you have a Medicaid managed care story? Contact Senior Correspondent Chad Terhune at cterhune@kff.org or via Signal at 657-226-0625

Some Gun Control Measures ‘On The Table’ For Trump Following Florida Shooting

President Donald Trump has directed the Justice Department to issue regulations banning so-called bump stocks, which convert semiautomatic guns into automatic weapons. But people familiar with the conversations say he is mulling going further — and perhaps putting himself at odds with the NRA. Meanwhile, students are still reeling from the psychological toll of the mass shooting.

Bad Bedside Manna: Bank Loans Signed In The Hospital Leave Patients Vulnerable

Laura Cameron, then three months pregnant, tripped and fell in a parking lot and landed in the emergency room last May — her blood pressure was low and she was scared and in pain. She was flat on her back and plugged into a saline drip when a hospital employee approached her gurney to discuss how she would pay her hospital bill.

Though both Cameron, 28, and her husband, Keith, have insurance, the bill would likely come to about $830, the representative said. If that sounded unmanageable, she offered, they could take out a loan through a bank that had a partnership with the hospital.

The hospital employee was “fairly forceful,” said Cameron, who lives in Fayetteville, Ark. “She certainly made it clear she preferred we pay then, or we take this deal with the bank.”

Hospitals are increasingly offering “patient-financing” strategies, cooperating with financial institutions to offer on-the-spot loans to make sure patients pay their bills.

Private doctors’ offices and surgery centers have long offered such no- or low-interest financing for procedures not covered by insurance, like plastic surgery, or to patients paying themselves for an expensive test or procedure with a fixed price.

But promoting bank loans at hospitals and, particularly, emergency rooms raises concerns, experts say. For one thing, the cost estimates provided — likely based on a hospital’s list price — may be far higher than the negotiated rate ultimately paid by most insurers. Sick patients, like Cameron, may feel they have no choice but to sign up for a loan since they need treatment. And the quick loan process, usually with no credit check, means they may well be signing on for expenses they can ill afford to pay.

The offers may sound like a tempting solution for scared, vulnerable patients, but they may not be such a great bargain, suggests Mark Rukavina, an expert in medical debt and billing at Community Catalyst, a Boston-based advocacy group.

His point: “If you pay zero percent interest on a seriously inflated charge, it’s not a good deal.”

How The Loans Work

Between higher deductibles and narrower networks, patients are paying larger portions of their medical bills. The federal government estimates consumers spent $352.5 billion out-of-pocket on health care in 2016.

But many patients have trouble coming up with cash to pay bills of hundreds or even thousands of dollars, meaning hospitals are having a harder time collecting what they believe they are owed.

To solve their problem, about 15 to 20 percent of hospitals are teaming up with lenders to offer loans, said Bruce Haupt, CEO of ClearBalance, a loan servicing company. He, along with many other analysts, expects that percentage to grow.

The process begins with a hospital estimate of a patient’s bill, which takes insurance coverage into account. A billing representative then lays out payment plans for the patient, often while he or she is still being treated.

A patient can then sign up for a loan, often without a credit check. Patients write smaller monthly checks to the lender, who has paid the hospital, while keeping a designated percentage of the bill as a fee.

Proponents view financing as a useful alternative to medical credit cards, which can surprise users with high interest rates. The partnerships are tempting for hospitals since they offload the need to administer monthly payment plans and collection efforts.

Federal law requires lenders be transparent about the loan terms, a protection that extends to consumers entering these health care arrangements. That means disclosure of interest rates, other fees and the payment schedule.

Even so, said Gerard Anderson, a Johns Hopkins health policy professor and an expert on health care pricing, “it’s an often gentler version of asking you to pay up.”

But an on-the-stretcher sell leaves patients little opportunity for due diligence.

“What’s the charge they’re using to determine what’s a reasonable amount to pay?” Anderson added.

Cameron was suspicious of the $830 estimate of her bill, since she had good coverage from her job at the University of Arkansas. She and her husband had extensive experience with the health care system and its costs. No one had ever asked her to pay upfront, even when her husband owed tens of thousands for cancer treatment.

“It just felt so uncomfortable to us that they would try to push us through a bank, which is designed to make a profit,” Cameron said.

A Growth Business With Risk Of Default

At Florida-based Orlando Health, which works with ClearBalance, loans typically range from $3,000 to $7,000, said Michele Napier, the health system’s chief revenue officer. The highest debt a patient has taken on — about $13,000 — was because of a high-deductible plan, she said.

“All of a sudden a catastrophic event occurs, and to have $13,000 in the bank account is a lot to ask,” she said. “They’re able to spread those payments.”

Though Laura Cameron and her husband have insurance, a hospital employee told them that an emergency room bill after a then-pregnant Laura was treated for a fall would likely total about $830. The employee said that if they couldn’t afford that, they could take out a loan through a bank that had a partnership with the hospital. The Camerons declined the offer. (Charlie Kaijo for Kaiser Health News)

Low-income patients without insurance likely will not need loans to finance large bills,because they should quality for aid from the hospital, or be treated as charity care, Napier said.

It’s a conversation that starts at registration, she added. “If a patient shares with us that they have no resources or limited resources to pay, we will provide information on our financial assistance and other programs including screening them for Medicaid.”

The idea is to foster open conversations about cost and help patients and doctors weigh their options, both financial and medical, said Rick Gundling, a senior vice president at the Healthcare Financial Management Association, a trade group.

“The patient may say, ‘Hey, do I need to do this knee surgery now? Can we wait until I save up, or do I have other options, like physical therapy?’” he said. “The doctor may say … let’s look at other options.”

But the loans can be a band-aid solution, leading vulnerable patients to sign up to pay far more than they should, said Kathleen Engel, a research professor of law at Boston-based Suffolk University and an expert in consumer credit and mortgage finance.

“The hospital potentially is charging the patient the full, what I would call ‘whack rate’ for their care,” she said. “They try to collect the debt.”

Since many of these loans come without credit checks or affordability tests, the odds are higher that a loan could be financially unwise, experts warn.

At ClearBalance, loans average about $1,700, Haupt said. In practice, that means some patients are financing $150 bills, while others have them for as large $50,000.

Default rates vary across the country, with the highest default rates — up to 1 in 5 patients — in places such as Texas and Louisiana. In other areas, closer to 6 or 7 percent of patients ultimately cannot pay off their loans.

“Some of these people are destined to default,” Engel said. “If you have to get a loan for $500 for medical care, that means you are really living at the margins.”

Cameron declined the loan — and chose not to hand over any other form of payment. She wanted to wait until she received her insurance statement.

In the end, the couple owed only $150, the copayment for an ER visit. “It felt to us like it could screw someone over who wasn’t aware about how to work that system,” she said, though she admitted to feeling intimidated as she lay on the stretcher.

She added: “It can be scary feeling like you owe someone money.”

Bad Bedside Manna: Bank Loans Signed In The Hospital Leave Patients Vulnerable

Laura Cameron, then three months pregnant, tripped and fell in a parking lot and landed in the emergency room last May — her blood pressure was low and she was scared and in pain. She was flat on her back and plugged into a saline drip when a hospital employee approached her gurney to discuss how she would pay her hospital bill.

Though both Cameron, 28, and her husband, Keith, have insurance, the bill would likely come to about $830, the representative said. If that sounded unmanageable, she offered, they could take out a loan through a bank that had a partnership with the hospital.

The hospital employee was “fairly forceful,” said Cameron, who lives in Fayetteville, Ark. “She certainly made it clear she preferred we pay then, or we take this deal with the bank.”

Hospitals are increasingly offering “patient-financing” strategies, cooperating with financial institutions to offer on-the-spot loans to make sure patients pay their bills.

Private doctors’ offices and surgery centers have long offered such no- or low-interest financing for procedures not covered by insurance, like plastic surgery, or to patients paying themselves for an expensive test or procedure with a fixed price.

But promoting bank loans at hospitals and, particularly, emergency rooms raises concerns, experts say. For one thing, the cost estimates provided — likely based on a hospital’s list price — may be far higher than the negotiated rate ultimately paid by most insurers. Sick patients, like Cameron, may feel they have no choice but to sign up for a loan since they need treatment. And the quick loan process, usually with no credit check, means they may well be signing on for expenses they can ill afford to pay.

The offers may sound like a tempting solution for scared, vulnerable patients, but they may not be such a great bargain, suggests Mark Rukavina, an expert in medical debt and billing at Community Catalyst, a Boston-based advocacy group.

His point: “If you pay zero percent interest on a seriously inflated charge, it’s not a good deal.”

How The Loans Work

Between higher deductibles and narrower networks, patients are paying larger portions of their medical bills. The federal government estimates consumers spent $352.5 billion out-of-pocket on health care in 2016.

But many patients have trouble coming up with cash to pay bills of hundreds or even thousands of dollars, meaning hospitals are having a harder time collecting what they believe they are owed.

To solve their problem, about 15 to 20 percent of hospitals are teaming up with lenders to offer loans, said Bruce Haupt, CEO of ClearBalance, a loan servicing company. He, along with many other analysts, expects that percentage to grow.

The process begins with a hospital estimate of a patient’s bill, which takes insurance coverage into account. A billing representative then lays out payment plans for the patient, often while he or she is still being treated.

A patient can then sign up for a loan, often without a credit check. Patients write smaller monthly checks to the lender, who has paid the hospital, while keeping a designated percentage of the bill as a fee.

Proponents view financing as a useful alternative to medical credit cards, which can surprise users with high interest rates. The partnerships are tempting for hospitals since they offload the need to administer monthly payment plans and collection efforts.

Federal law requires lenders be transparent about the loan terms, a protection that extends to consumers entering these health care arrangements. That means disclosure of interest rates, other fees and the payment schedule.

Even so, said Gerard Anderson, a Johns Hopkins health policy professor and an expert on health care pricing, “it’s an often gentler version of asking you to pay up.”

But an on-the-stretcher sell leaves patients little opportunity for due diligence.

“What’s the charge they’re using to determine what’s a reasonable amount to pay?” Anderson added.

Cameron was suspicious of the $830 estimate of her bill, since she had good coverage from her job at the University of Arkansas. She and her husband had extensive experience with the health care system and its costs. No one had ever asked her to pay upfront, even when her husband owed tens of thousands for cancer treatment.

“It just felt so uncomfortable to us that they would try to push us through a bank, which is designed to make a profit,” Cameron said.

A Growth Business With Risk Of Default

At Florida-based Orlando Health, which works with ClearBalance, loans typically range from $3,000 to $7,000, said Michele Napier, the health system’s chief revenue officer. The highest debt a patient has taken on — about $13,000 — was because of a high-deductible plan, she said.

“All of a sudden a catastrophic event occurs, and to have $13,000 in the bank account is a lot to ask,” she said. “They’re able to spread those payments.”

Though Laura Cameron and her husband have insurance, a hospital employee told them that an emergency room bill after a then-pregnant Laura was treated for a fall would likely total about $830. The employee said that if they couldn’t afford that, they could take out a loan through a bank that had a partnership with the hospital. The Camerons declined the offer. (Charlie Kaijo for Kaiser Health News)

Low-income patients without insurance likely will not need loans to finance large bills,because they should quality for aid from the hospital, or be treated as charity care, Napier said.

It’s a conversation that starts at registration, she added. “If a patient shares with us that they have no resources or limited resources to pay, we will provide information on our financial assistance and other programs including screening them for Medicaid.”

The idea is to foster open conversations about cost and help patients and doctors weigh their options, both financial and medical, said Rick Gundling, a senior vice president at the Healthcare Financial Management Association, a trade group.

“The patient may say, ‘Hey, do I need to do this knee surgery now? Can we wait until I save up, or do I have other options, like physical therapy?’” he said. “The doctor may say … let’s look at other options.”

But the loans can be a band-aid solution, leading vulnerable patients to sign up to pay far more than they should, said Kathleen Engel, a research professor of law at Boston-based Suffolk University and an expert in consumer credit and mortgage finance.

“The hospital potentially is charging the patient the full, what I would call ‘whack rate’ for their care,” she said. “They try to collect the debt.”

Since many of these loans come without credit checks or affordability tests, the odds are higher that a loan could be financially unwise, experts warn.

At ClearBalance, loans average about $1,700, Haupt said. In practice, that means some patients are financing $150 bills, while others have them for as large $50,000.

Default rates vary across the country, with the highest default rates — up to 1 in 5 patients — in places such as Texas and Louisiana. In other areas, closer to 6 or 7 percent of patients ultimately cannot pay off their loans.

“Some of these people are destined to default,” Engel said. “If you have to get a loan for $500 for medical care, that means you are really living at the margins.”

Cameron declined the loan — and chose not to hand over any other form of payment. She wanted to wait until she received her insurance statement.

In the end, the couple owed only $150, the copayment for an ER visit. “It felt to us like it could screw someone over who wasn’t aware about how to work that system,” she said, though she admitted to feeling intimidated as she lay on the stretcher.

She added: “It can be scary feeling like you owe someone money.”

Trump Administration Proposes Rule To Loosen Curbs On Short-Term Health Plans

[UPDATED at 12:30 p.m. ET]

Insurers will again be able to sell short-term health insurance good for up to 12 months under a proposed rule released Tuesday by the Trump administration that could further roil the marketplace.

“We want to open up affordable alternatives to unaffordable Affordable Care Act policies,” said Health and Human Services Secretary Alex Azar. “This is one step in the direction of providing Americans health insurance options that are more affordable and more suitable to individual and family circumstances.”

The proposed rule said short-term plans could add more choices to the market at lower cost and may offer broader provider networks than Affordable Care Act plans in rural areas.

But most short-term coverage requires answering a string of medical questions, and insurers can reject applicants with preexisting medical problems, which ACA plans cannot do. As a result, the proposed rule also noted that some people who switch to them from ACA coverage may see “reduced access to some services,” and “increased out of pocket costs, possibly leading to financial hardship.”

The directive follows an executive order issued in October to roll back restrictions put in place during the Obama administration that limited these plans to three months. The rule comes on the heels of Congress’ approval of tax legislation that in 2019 will end the penalty for people who opt not to carry insurance coverage.

The administration also issued separate regulations Jan. 4 that would make it easier to form “association health plans,” which are offered to small businesses through membership organizations.

Together, the proposed regulations and the elimination of the so-called individual mandate by Congress could further undermine the Affordable Care Act marketplace, critics say.

Seema Verma, who now heads the Centers for Medicare & Medicaid Services, which oversees the marketplaces, told reporters Tuesday that federal officials believe that between 100,000 and 200,000 “healthy people” now buying insurance through those federal exchanges would switch to the short-term plans, as well as others who are now uninsured.

The new rule is expected to entice younger and healthier people from the general insurance pool by allowing a range of lower-cost options that don’t include all the benefits required by the federal law — including plans that can reject people with preexisting medical conditions. Most short-term coverage excludes benefits for maternity care, preventive care, mental health services or substance abuse treatment.

“It’s deeply concerning to me, considering the tragedy in Florida and national opioid crisis, that the administration would be encouraging the sale of policies that don’t have to cover mental health and substance abuse,” said Kevin Lucia, a research professor and project director at Georgetown University’s Health Policy Institute.

Over time, those remaining in ACA plans will increasingly be those who qualify for premium tax credit subsidies and the sick, who can’t get an alternative like a short-term plan, predicts Lucia and other experts. That, in turn, would drive up ACA premiums further.

“If consumers think Obamacare premiums are high today, wait until people flood into these short-term and association health plans,” said industry consultant Robert Laszewski. “The Trump administration will bring rates down substantially for healthy people, but woe unto those who get a condition and have to go back into Obamacare.”

If 100,000 to 200,000 people shift from ACA-compliant plans in 2019, this would cause “average monthly individual market premiums … to  increase,” the proposed rule states. That, in turn, would cause subsidies for eligible policyholders in the ACA market to rise, costing the government $96 million to $168 million.

Supporters said the rules are needed because the ACA plans have already become too costly for people who don’t receive a government subsidy to help them purchase the coverage. “The current system is failing too many,” said Verma.

And, many supporters don’t think the change is as significant as skeptics fear.

“It simply reverts back to where the short-term plan rules were prior to Obama limiting those plans,” said Christopher Condeluci, a benefits attorney who also served as tax counsel to the U.S. Senate Finance Committee. “While these plans might not be the best answer, people do need a choice, and this new proposal provides needed choice to a certain subsection of the population.”

But, in their call with reporters, CMS officials said the proposed rule seeks comment on whether there are ways to guarantee renewability of the plans, which currently cannot be renewed. Instead, policyholders must reapply and answer medical questions again.  The proposal also seeks comments on whether the plans should be allowed for longer than 12-month periods.

The comment period for the proposed rule runs for 60 days. Verma said CMS hopes to get final rules out “as quickly as possible,” so insurers could start offering the longer duration plans.

Short-term plans had been designed as temporary coverage, lasting for a few months while, for instance, a worker is between jobs and employer-sponsored insurance. They provide some protection to those who enroll, generally paying a percentage of hospital and doctor bills after the policyholder meets a deductible.

They are generally less expensive than ACA plans, because they cover less. For example, they set annual and lifetime caps on benefits, and few cover prescription drugs.

Most require applicants to pass a medical questionnaire — and they can also exclude coverage for preexisting medical conditions.

The plans are appealing to consumers because they are cheaper than Obamacare plans. They are also attractive to brokers, because they often pay higher commissions than ACA plans. Insurers like them because their profit margins are relatively high — and are not held to the ACA requirement that they spend at least 80 percent of premium revenue on plan members’ medical care.

Extending short-term plans to a full year could be a benefit to consumers because they must pass the health questionnaire only once. Still, if a consumer develops a health condition during the contract’s term, that person would likely be rejected if he or she tried to renew.

Both supporters and critics of short-term plans say consumers who do develop health problems could then sign up for an ACA plan during the next open enrollment because the ACA bars insurers from rejecting people with preexisting conditions.

“We’re going to have two different markets, a Wild West frontier called short-term medical … and a high-risk pool called Obamacare,” said Laszewski.

KHN senior correspondent Phil Galewitz contributed to this article.