The economic circumstances that young professionals often find themselves in following completion of their studies are distressingly familiar to the medical education community. But the sheer size of the accumulated debt is only the proverbial tip of the iceberg. The reality is that 75% of those who attend medical school come from families whose income is in the upper two quintiles in our society.
This circumstance influences students well before they get to medical school. Students who have access to high schools which have strong college preparatory curricula such as magnet sciences programs and AP courses, and whose families can afford SAT preparation courses and other enrichment activities are much more likely to attend the relatively small number of highly selective colleges and universities whose graduates, in turn, account for the majority of students entering medical school.
And student economic factors are strongly affecting the nature of the physician workforce in terms of both geographic distribution and specialty mix. Community of origin is an important factor influencing where physicians ultimately practice. If small numbers of individuals from less affluent rural and urban communities are entering medical school, fewer medical school graduates will ultimately be available to practice in these communities. Further, income discrepancies between specialist and generalist physicians may, in aggregate, be greater than $30 million over the course of a practice career.
For those students “drowning in debt” this reality is difficult to ignore. While developing solutions to physician workforce imbalances will be complex, assuring the entry of a more diverse group of students in to medical school will be a key piece of the puzzle. This will require that both the process of selecting students and the method of paying for medical education be altered. Public funding of medical education in exchange for post graduation public service is a strategy that has proven successful in other countries. At the very least, a substantially expanded targeted loan forgiveness program is needed if we are going to adequately address the health workforce needs of our nation
The Internet Forums of the National Conference on Primary Health Care Access will take selected topics for discussion between National Conferences. The following topic was suggested by a recent web posting by the Forbes Magazine, which was widely disseminated by the Yahoo Finance website:
On Monday, July 19 2010, www.forbes.com, the Internet site for Forbes Magazine, posted a list of what they calculated to be the five “worst paying” physician specialties in the United States. The article, by Tara Weiss and Seth Cline, extensively quoted Dr Ted Epperly, the president of the American Academy of Family Physicians, who is an Idaho physician, with a military background and a career as a family medicine residency director.
Dr Epperly cited the comparatively low remuneration of the “primary care specialties” – particularly family medicine, internal medicine and pediatrics. Of the lowest paid specialties “family medicine with obstetrics” was listed by the Forbes authors as a separate specialty, as was the function of “hospitalist” (which is considered by some a sub-specialty of internal medicine).
It has previously been argued on this website that differences among physician specialty incomes seem not to be determined by the marketplace, nor, for that matter, through some process like “central planning”, which presumably would place a premium on those entering specialties considered most in need. Instead the differences appear to have evolved as the unintended or unplanned consequences of previous federal intervention in the health care system (principally, Medicare and Medicaid). That said, few people appear to grasp the processes by how remuneration is determined and what can be changed to make things work differently.
One notes that Dr Dowling, who is the Chair of the UCLA Medical School Department of Family Medicine quotes his own daughter, at that time a medical student, on the “ROAD” to high physician income (ROAD being a student acronym for the “high income” specialties of Radiology, Orthopedics, Anesthesiology and Dermatology).
The argument has been made that the particular form of the 2010 national health care reform legislation was based in part on legislation enacted in Massachusetts, and it has been argued that the lack of sufficient primary care physicians in Massachusetts impeded that state’s goals for implementing the legislation they enacted. This is something that should continue to be analyzed and discussed, since it may provide some insights as to what the consequences of the enactment of federal legislation this year is likely to be on the existing physician workforce.
There are other issues that we believe should be discussed:
How is physician income determined?
Who decides, for the purpose of public expenditures on health care, the relative value of the different functions that various physicians perform?
Finally, it might be interesting to give some thought to the actual figures that Weiss and Cline, the Forbes authors, compiled for these five specialties. They observed the aggregate salaries that were determined for each of the four previous years – 2006-07 through 2009-2010. The lowest physician specialties were ranked by the 2010 aggregate salaries.
These are the 2009-10 rates calculated for the five “worst paying” specialties:
Family Medicine: $175,000
Internal Medicine: 191,000
Family Medicine with Obstetrics: 200,000
However, since they provided historical data for each of the previous years, it seemed worth calculating what those data showed as the four year trend. Using the Forbes data, we re-ordered the list of the 2009-10 bottom five to show the percentage increases in salaries between the 2006-07 aggregate income and that of 2009-10.
This is the re-ordering of the 2009-2010 bottom five (highest to lowest increase in four year salary):
Family medicine with obstetrics: 25.8%
Internal Medicine: 13.2%
Family Medicine: 8.7%
One observes that all of these “primary care specialties” are shown as increasing even before the health care reform legislation was enacted. If primary care medicine is a sector of our economy that is on the decline, such as, say, print journalism (reflecting the decline in revenue streams such as automobile advertisements in daily newspapers), one might expect income to be stagnating or decreasing.
These are some thoughts for which replies are invited.
The best advice that I received when I was contemplating a career in medicine was to concentrate my initial efforts on getting into medical school and leave the issue of how to pay for it until another day. They assured me that there would be enough money available in the form of scholarships, grants, and low interest loans to pay for my medical education.
What they did not educate me about was debt management, the principle of compound interest, and that it could take me the bulk of my professional career to pay off my student loans.
It has been over twenty years since I heard those words of wisdom, and I would continue to provide students with similar advice, but I would qualify my comments with the fact that the trend line for medical student indebtedness has become increasingly steep with each academic year.
Students must arrive at the door of the house of medicine with an enhanced awareness of how they will navigate the rising tide of medical education debt that they will encounter prior to their graduation.
As illustrated in the June 24, 2010 article on “Drowning in Student Debt” this problem is further compounded when two professional students graduate with a combined student debt of nearly $300,000. According to the most recent Association of American Medical Colleges (AAMC) graduate medical student survey the average educational debt for the class of 2009 was $156,456.
Eighty-seven percent of these graduating medical students had outstanding loans and 58% of graduates had debt of at least $150,000. This is compared to the graduates of the class of 2001 who had a total average debt of $86,000. Within the decade AAMC statistics confirm that public medical school graduate debt has increased at an annual rate of 6.89%, while private medical school graduate debt increased at an average rate of 5.92%.
Trends that are contributing to this rapid increase in the annual public medical education debt, compared to the private medical schools, are the shrinking state budgets and the corresponding decreased state share of instruction dollars to publicly supported medical schools. Public medical schools are thus forced to find additional funding in the form of combinations of increased research dollars, institutional budget cuts, and/or by increasing both the numbers of matriculating medical students and their tuition and fees.
However, if this trend continues at its current rate of increase, the AAMC projects that both the public and private medical schools will have the class of 2033 graduating with an approximate debt of $750,000!
Another disturbing trend cited in the Center for Studying Health System Change article entitled “Losing Ground: Physician Income 1995-2003,” their Community Tracking Study Physician Survey found that physician incomes are not showing similar trends of increase to compensate for medical student indebtedness.
In fact, physician salaries increased annually only at a rate of 1.45% in the early part of the decade prior to the current economic downturn. Other surveys using various physician demographics, methodologies, and populations of physicians demonstrate different salary growth rates but none approach the current nor projected rates of medical student indebtedness.
Until recently, medical residents were able to defer their loan repayments until the completion of their residency program. However, as resident salaries have increased over the years combined with the recent advent of resident work hour restrictions (the hourly wage has now effectively increased from a sub-minimum wage of ~$5.20 to over $10.41), lenders are no longer willing to accept the argument of financial hardship for the deferment of loan payments throughout residency.
Other sources of increasing medical student debt burdens include the fact that students accrue interest due to prolonged deferments of payment, students are entering medical school with more undergraduate school debt, and there are increasing numbers of non-traditional students entering medical school with children and previous life financial obligations.
This increasing trend of medical school indebtedness results in students seeking medical subspecialties with traditionally higher incomes. This also can result in decreased diversity of the physician workforce as student from lower socioeconomic or minority populations are discouraged from attending medical school.
In the final analysis, medical students will need to take precaution to put on their economic life preservers during the early stages of their journey through medical school. It is imperative that students become more aware of the importance of adjusting their lifestyles to insure that they do not spend a lifetime paying off an ocean of medical education debt.
I would continue to recommend that a potential applicants to medical school first concentrate on getting accepted, but that they prepare themselves soon thereafter for a professional life of fiscal responsibility.
For more information regarding medical student debt readers can review the American Medical Association document from their Task Force on Medical Education Debt.
Response from Perry A. Pugno, MD, MPH, of the American Academy of Family Physicians
Dr. LeRoy’s comments are right on target. In fact, our surveys of both medical students and residents demonstrate a clear unmet need for training in personal financial management. Those surveys have been validated by similar work done at the state level by a number of medical societies.
This is a long-standing problem. So, in an attempt to impact that unmet need, the AAFP is putting forward a new edition of Residency to Reality, our practice management curriculum for residency programs. One of the newest components of that product is the section on personal financial management.
We are hopeful that, armed with a bit more information and some practical recommendations, the family medicine residency graduates of tomorrow will be better prepared to cope with the challenges of personal finance as they advance through their careers.
Response of Charles Q. North, MD, MS, of the University of New Mexico
Dr. LeRoy identifies one of many perverse incentives in our medical education and health care system that has wide ranging consequences on the health status of the public and shape of the medical care system. Unless a student has access to family wealth, the stress of indebtedness weighs heavily on a string of decisions.
First, students are much less likely to apply to out of state schools either private or public which are even more expensive so their medical education experiences are limited to their state of origin until they go through the match when they have little control over the location of their residency. Many of them end up out of state in residency giving taxpayers little return on their investment. Why is there so much control over where students study in medical school and so little control over where they do residency?
Second, they are more attracted to the highest earning specialties in order to pay off the debt and become financially secure after 8-10 years of experiencing only indebtedness. As Dr. LeRoy points out, this system leads to a career of student loan payments while most are also paying a mortgage and their own children’s tuition. There is a greater burden on students from families of low socioeconomic status who are more likely to have no inheritance or even inherit family debt and financial obligations rather than wealth.
The pay gap between specialties has been well documented and remains a glaring inequity begging to be addressed by the Center for Medicare and Medicaid services. The Affordable Care Act (ACA) has some provisions that at a minimum may prevent further erosion of the lowest compensated specialties. This is a good start but it will not be enough to control excessive compensation for procedural based medical and dental specialties. It will be difficult to address the high cost of medical education and student indebtedness without also addressing the pay gap.
Health care and education are both consider fundamental rights and are necessary services to maintain a civil society. Economic growth is dependent on both. Many advanced western countries have determined that education should be more heavily subsidized in order to both provide opportunities for learners and a work force that serves the needs of the population. They have included medical professional training in this educational policy. Further incentives can be built into the system to waive fees and provide incentives to work in underserved geographic areas and specialties to address social needs. In addition to the Uniformed Services where tuition is waived for service to the Country, we in the United States have had such incentives through the National Health Service Corps and Indian Health Service scholarship and loan repayment programs since the 1970’s. Both have experienced improved funding in the ACA and will attract new doctors to work in health manpower shortage areas. However, there is still not enough money in the system to make much of a dent in work force while we have such a large pay gap.
It is very difficult to nurture the altruism required to serve in shortage areas when medical students are constantly feeling the stress of indebtedness. For underrepresented minority students, rural students, and students from low socioeconomic status the stress is even worse. Therefore the best available option for many is to seek the best residency that will give them an opportunity to pay off the most debt as quickly as possible. This is not a formula for social justice or improved health status of the American people.
I propose that states and private medical schools work to lower tuition as much as possible to attract the best motivated and service oriented students from communities who most need doctors. Then the students should be trained in settings that foster partnerships with communities and address social determinants and public health goals, not just biomedical model training. Society will gain by improving health status, students will gain by working on the greatest challenges in health care delivery and institutions will gain by actually serving the needs of society rather than the medical industrial complex.
Currently the financial incentives in the US health care economy primarily serve the interests of shareholders and investors in insurance companies, biomedical device manufacturers, pharmaceutical companies, research institutions and hospitals. More emphasis is placed on medical students to achieve self fulfillment and wealth than to address the greatest public health and personal health needs of our citizens. Don’t all Americans deserve to have a medical education system where public health and quality patient care are more important than financial incentives to create more highly compensated specialists who contribute very little to address health disparities and social justice?
Over the past 21 years, the National Conferences on Primary Health Care Access have identified many factors that have resulted in observable imbalances between primary and subspecialty medical care and imbalances between public health needs and the resources applied to them.
The most recent National Conference (April 2010) examined some of the consequences of the recent legislation passed by Congress and signed by President Barack Obama.
The legislation enacted is the most comprehensive in more than a generation, and provisions of it should bring about important improvements in primary health care access. Even so, a significant percentage of the American population is skeptical that the legislation will be effective, and a large number doubt that what the legislation contained is what should have been enacted. Like Medicare and Medicaid, both enacted 45 years ago, it is quite likely that many of its consequences will be unintended and unexpected.
Over the next several months, in preparation for the 22nd National Conference on Primary Health Care Access in San Francisco (April 18-20, 2011), we will study some of the provisions that seem particularly hopeful for improving primary health care access. Likewise, we plan to propose several issues for discussion that perhaps were inadequately discussed during the recent legislative process.
The first of these inadequately addressed issues is the matter of student indebtedness (particularly the amount of loans that have been amassed by students pursuing medical degrees) and its potential impact on physician supply and the processes by which medical school graduates select their specialties.
When we think of two young professionals married to each other, we think that these two people have nothing in the world economically to worry about. Unfortunately, for most professionals coming out of their respective graduate schools, the reality can be quite different.
The reality is student loan debt with interest rates that are running at 8% and higher. Graduate school student loans may total between $100,000 and $300,000 per individual, while at the same time these individuals must deal with a sour economy and diminished job and income expectations.
Consider, as a case study, a professional couple living in a middle class community in Pennsylvania. The wife is a physician in her first year of residency, working for one of the larger hospital systems and her husband is a lawyer working for a small company. Both are earning an income, which is not always assured in today’s economy.
The physician works approximately 95 hours a week. Her first year salary is $48,000, which in her second year will increase to $49,500. She receives medical, dental and vision care insurance from the hospital, which covers her and her husband.
Her husband works approximately the same amount of hours in a month as she does in one week. He earns approximately $37,000 a year. He does not receive medical, dental, or vision insurance. Because he is an independent contractor rather than an employee of the company for which he performs work, his wages are reported as IRS Form 1099 income for “sole proprietors”. For purposes of federal and state taxation, an independent contractor is responsible for paying both the employer’s and the wage earner’s halves of the Social Security and Medicare taxes.
This raises the husband’s Social Security tax liability from 6.2% to 12.4% and the Medicare tax liability from 1.450% and 2.9%, because he is “self employed”. In effect, he has required “payroll taxes” of 15.3% of income, rather than the 7.65% that “wage earners” pay. Even though there is a ceiling on the amount of income taxed for social security (well above the lawyer’s present income), the Medicare tax is assessed against all earned payroll income.
Although the professional couple earns $85,000 before tax, tax credits and any deductions, when one factors in the costs of servicing their student debt, the couple’s income picture is much less adequate than it might initially seem.
Before breaking down where the $85,000 household income is spent, a discussion of how the student loans were incurred is in order.
Each attended a state university, and either through scholarship or an educational fund, they both managed to graduate without any undergraduate student loans (although many of their graduate school classmates had amassed sizable student debt as undergraduates) . But neither was able to pay the costs of medical or law school.
Her debt student debt load totalled $167,000 for tuition alone, with an additional $36,000 in loans for her living expenses for the four years of medical school. Medical and law school students do not have time to work on anything other than their studies, so any income from odd jobs while in these or most professional graduate degree program is not an option. His student loans totaled $136,000 for both tuition and living expenses for a year of graduate school and three years of law school.
There are currently a variety of government sponsored student loan repayment schemes. But with regards to our couple what is only relevant is she is in a hardship deferment, meaning that she is making no payments on her debt (even though its interest is compounding). His repayment is currently capped at 15% of his AGI (Adjusted Gross Income, the amount of income on which he owes taxes).
The lawyer’s payments just after graduation were costing $1250 a month. However, with his low current income, the repayment rate has been adjusted to $460 a month. But, since this couple recently married, his student loans will now increase to 15% of the couple’s total income increasing his payment amount to $920. (After 30 years of making regular monthly payments, any outstanding debt is forgiven.)
Both professionals have cars. His car payment is $385 a month, while her payment is $350 a month. Both vehicles get over 32 MPG average. Because they live near her residency program, between them they spend less than $100 a month on fuel. Their combined cost for both their automobile and homeowner’s insurance is approximately $190 a month.
Given that the couple knew her residency would be 3-4 years and that the housing market was priced at the lowest levels in 10 years, the couple decided to purchase a townhouse. Their fixed mortgage payment is $1330 a month, less than cost of renting in the same community.
Let’s examine the income and expenditure flows for the couple. First, before AGI, the couple’s gross income is estimated at $85,000, which would place them in the 28% IRS tax bracket. Given that the top of the 25% tax bracket is $82,000 and that the couple will get at least their standard deduction of $11,400, we calculate their tax rate at 25% for federal taxes. However, the federal tax rate does not include their social security taxes.
Taking the $48,000 amount, the physician will be paying $3,672 in SSI, while her husband will be paying $5,661, based off his $37,000 income.
After withholding and estimated taxes, this leaves the following amounts:
post SSI tax
25% federal tax rate
This leaves the following after federal tax amounts for their monthly budgets:
Monthly income after income tax
Student loan payment
Housing expenses (mortgage and Insurance), car insurance, car payments, etc.
After tax income
*This does not cover property taxes, Pennsylvania’s township taxes or state income taxes. State and local taxes vary by state and even township in commonwealth states like Pennsylvania. As these taxes can change widely even from year to year , so that it is hard to estimate these tax liabilities accurately.
**the cell phone plan covers both data, and 700 shared minutes plus roll over.
The couple’s net income, after the living expenses, student loans and federal taxes is $1,014 a month or $12,168 annually from which the local property assessments and any state income tax will be made. In this particular example those annual local and state assessments total $3250, leaving only $8,918 ($743 monthly) for the couple’s discretionary income prior to their marriage.
Because the husband and wife’s income are now aggregated, the husband’s student loans, although still capped at 15% of monthly income, have now doubled, as a result of the joint income. The discretionary income that was used for the likes of dining out, clothing, adult beverages, gym memberships, professional association memberships, movies, movie rentals, have now been reduced further by the doubling of his student loan payments from 460 to $920, leaving $283 a month. This razor-thin amount of discretionary income, makes savings or expenditures on such items as household furnishings (which would benefit the local community) impossible.
The reason why there is any residual income at all in this example is that the physician, who is in residency, has her loans deferred until she graduates from the residency program. When she finishes her residency and is practicing in her specialty, she would expect a sizable increase in income, but with that increase monthly payments on HER loans must commence and the amount her husband is required to pay on his loans must increase to reflect the increase in their joint income.
For this example, assume his income and their living expenses remain the same, but that her income and their loan obligations increase (i.e., any increase in their aggregate income, regardless of whose income increases, bumps up the amount of each person’s loan subject to the 15% loan payment cap). The starting salary in her field is approximately $175,000 annually depending on location.
28% tax rate*
*SSI taxes capped at $108,000; income tax rate based on 2010 rates, filing jointly.
A hypothetical monthly budget once she has entered practice might be as follows.
monthly after tax income
15% student loan cap
His student loan
Of course these numbers are only estimates and have not been fully calculated for deductions. These are only intended for the purpose of showing the raw data that married professionals have to go through. Each decision made will change the raw numbers. For example once physicians graduate from their residency programs, they tend to move to a new location, which means a new home or a new apartment. Depending on the circumstances, this will reduce or increase discretionary income.
Although the after tax income might in other circumstances be regarded as a reasonable income, the crush of debt impacts the economic situation of the young professionals who experience it. While physicians still are any demand, for many professionals the projected increases in salaries will quite probably not be seen.
There likely has been no comparable time when so many professional couples have started their careers with such a high aggregate debt load for repaying and servicing their student debt. The impact of these debt levels is poorly understood. Some of the consequences may be foreseen, such as a continued avoidance by physicians of geographical areas and specialties thought to offer lower remuneration. Other unforeseen but likely perverse, consequences may well emerge.