By Casey B. Mulligan, Economics Professor, University of Chicago
The New York Times, March 20, 2013
In an ideal world, collecting debts would be as simple as asking debtors to pay their obligations when they are able to. But in reality most businesses have found that they need to obtain other assurances, such as collateral or the option to shut off services to a delinquent payer. Otherwise it is too easy for debtors to claim hardship and walk away without paying.
On the other hand, many families and other debtors do experience genuine hardship. In those cases it can be compassionate and even efficient to at least partly forgive the debts of people who have fallen on hard times. Many economists see loan defaults as (sometimes) an efficiency-enhancing form of risk-sharing.
One approach would be for lenders to develop and disclose a “forgiveness formula” that would clearly define “hard times” and indicate precisely what kind of forgiveness is possible. The advantage of forgiveness formulas is that distressed borrowers can be certain where they stand with the lender and can readily evaluate whether they were treated “fairly.”
Hospitals are also known to partly forgive medical debts incurred by the uninsured, while they make no accommodation for many others. Some states require hospitals to explain in writing how they go about discounting charges for hardship patients, but you might guess that hospitals worry that patients will game those calculations in order to pay less.
One advantage of health reforms that get more people on health insurance is that by getting people to pay for their health care before they get sick, the reforms reduce the number of cases in which clear forgiveness has to be traded off with formula gamesmanship.
Comment:
By Don McCanne, M.D.
A forgiveness formula for hospitals?
Other nations have been successful in providing health care to everyone at a cost much below that of our dysfunctional system here in the United States. Their programs often have first dollar coverage; therefore medical debt is almost unheard of – certainly a minuscule fraction of what we have here.
Instead of establishing strategies for forgiveness in the future, wouldn’t it be more logical to establish a health care financing system in which debt forgiveness would never need to be a consideration?
http://economix.blogs.nytimes.com/2013/03/20/forgiveness-formulas/