A quarter of Americans owe $10,000 or more in medical debt, even though half of them have health insurance that's supposed to minimize excessive health-care costs, a new survey finds.

From a selection of survey options, 46% of respondents with medical debt selected emergency room visits as the biggest reason for their debt. Just over 30% of respondents also selected Covid-19 treatment, and 23% also selected mental health treatment, according to a survey by Affordable Health Insurance, which polled 1,250 Americans.

Around 55% of the total respondents report having medical debt of some kind, saying that it affects their other financial goals. In fact, nearly half of people with medical debt say that it has prevented them from buying a house or saving for retirement.

Health insurance doesn't seem to matter when it comes to medical costs

The survey found that carrying health insurance doesn't seem to make much difference in whether you have to take on medical debt — it merely caps how much debt you'll owe.

According to the survey, 69% of respondents who pay for their own health insurance reported medical debt, as did 61% of respondents with policies through their employer and 59% of respondents with no health insurance at all.

One reason people with health insurance seem to be more likely to have debt than those without coverage: deductibles.

"Most traditional insurance plans have a high deductible, whether that policy is from the marketplace or from the employer," writes Noor Ali, a health-care advisor and medical doctor, in a blog post accompanying the survey. "You'll have to pay out of pocket for X amount of dollars before the insurance will pay any benefits."

People most commonly get health insurance through their employer, which has an average annual deductible limit of $1,669 for individual plans — although that number creeps up to $2,379 for people that work in companies with less than 200 employees, according to a recent Kaiser Family Foundation survey.

For Affordable Care Act marketplace plans — also known as Obamacare — the average annual deductible for individual coverage was $4,364, according to a 2020 analysis by the health insurance broker eHealth.

It's not easy to balance the cost of monthly premiums with deductibles

The reason why many people choose high deductible plans is because they tend to come with lower monthly premiums, which can cost hundreds of dollars. 

However, policyholders with high deductible/low premium plans are less likely to seek out primary or preventative care due to high upfront costs, according to the American Academy of Family Physicians. Since many medical problems are unexpected and exacerbated by a lack of preventive care, policyholders can quickly find themselves in debt, especially when they have to pay the full, yearly deductible amount.

Including deductibles and premiums, Americans spend an average of $12,530 on medical expenses every year. That's nearly 20% of annual earnings for those that earn the median household income of $67,521, according to 2020 U.S. Census Bureau data.

That said, having some sort of health insurance, even a Obamacare bronze plan, will still protect you from excessive health-care costs that can add up to hundreds of thousands of dollars, should disaster strike.

How to minimize health insurance costs

Higher deductibles typically correspond with smaller monthly premiums, but both can vary, as can the services which can be excluded from the deductible, like doctor visits or prescription drug costs. That's why Ali recommends that policyholders assess their health needs and compare that with what each policy's benefits actually offer when choosing a plan.

To minimize medical expenses on individually purchased plans, Ali recommends shopping around on the ACA marketplace, especially if your household income is 100% to 400% above the federal poverty level, as there are government subsidies that can negate or drastically lower your monthly premium costs, even for gold plans with lower deductibles. You can see what the income thresholds look like in your state, here.

It's also possible to qualify for medically underwritten health insurance policies based on good health, which might lower your premiums. However, these policies are often limited to 36-month terms or offer only supplemental coverage for things like vision or dental. The rules also vary by state.

Ali also suggests making a list of local, in-network health-care providers that can be accessed quickly when needed. This will minimize the accidental use of out-of-network providers, which can be expensive, particularly for emergency room visits.

"Emergency room care is designed for acute conditions where you're bleeding, have bodily injury or you're in distress and you cannot breathe," she says. Unless it's that serious, Ali suggests starting with a tele-medicine appointment, then an in-office doctor visit, then an urgent care facility, followed by an emergency room visit, as a last resort.

More debt relief is available this year

As of 2022, policyholders have new protections against "surprise billing" by out-of-network providers.

The newly enacted legislation prevents emergency rooms from charging out-of-network rates, although there are exceptions as to when and where these protections apply. Ambulances are not included as part of the legislation, for example.

You can find more information about your rights as a consumer here.

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