State lawmakers find America’s medical debt problem ‘can no longer be ignored’

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“You can’t put a price on the anxiety people are facing when they get these bills,” said North Carolina state Treasurer Dale Folwell, a Republican, who is pushing legislation that would cap interest on medical debt collections, prohibit collectors from foreclosing on property or garnishing wages and regulate how medical debt is shared with consumer reporting agencies. That bill passed unanimously in the state Senate and is stalled in the House as lawmakers work on a budget.

Oregon this year passed a law limiting the interest that can be charged on medical debt and requires non-profit hospitals to screen patients with bills of $500 for financial assistance eligibility.

Illinois enacted legislation that requires hospitals screen patients for financial assistance and take other cost-reducing measures before sending a bill to collection.

Colorado, in June, became the first state to enact a law prohibiting consumer reporting agencies from including medical debt in credit reports. The law also requires debt collectors to notify people that medical debt will not be included in their credit report.

New York lawmakers overwhelmingly passed a similar bill this spring.

“There’s a lot happening in states and it’s been slowly building,” said Eva Marie Stahl, vice president of public policy at RIP Medical Debt, a nonprofit that purchases people’s medical debt so they don’t have to pay it. “It’s relatable. It’s something everyone has experienced or has a loved one who has experienced it.”

Total medical debt in the United States is impossible to quantify because it hits people in incalculable ways. There was $88 billion in medical debt on consumer credit scores, according to a 2022 report from the Consumer Financial Protection Bureau, the most recent available nationwide data.

Since the report’s release, credit agencies have voluntarily removed debts of less than $500, debts less than a year old or those that have been marked paid, which means that figure is likely substantially lower today. But just because medical debit is not on a credit report doesn’t mean the debt disappeared. That money is still owed and patients may still be sued or pursued by debt collectors.

Credit scores were never an effective measurement because they represent only part of the story. Medical debt exists on credit cards and in payment plans to hospitals. People borrow from friends and family. They take out a second mortgage or an unsecured personal loan.

Total medical debt in the U.S. may be as high as $195 billion, according to KFF, a health policy research organization. Black and Hispanic people as well as young adults are most likely to have medical debt as are people in states that have not expanded Medicaid.

Even as the uninsured rate has declined to historic lows, medical debt has become more ubiquitous. It’s a consequence of rising out-of-pocket costs — the average family deductible is now almost $4,000, according to KFF, up from $2,500 a decade ago — and the ballooning costs of health care. Medical debt can pile up because of a dental emergency or certain fertility treatments, which often aren’t covered by insurance.

The vast majority of medical debt is owed to hospitals whose medical services tend to be more expensive, according to a recent report from the Urban Institute. More than two-thirds of people in debt to hospitals owed more than $1,000 and one-quarter owed at least $5,000. Roughly two-thirds of those who owed money to non-hospital providers owed less than $1,000 and just 6 percent owed more than $5,000.

Hospitals, by law, must treat anyone who walks into the emergency room regardless of ability to pay and they write off billions in uncompensated care every year. Hospitals are also contending with the rising costs of new technology, medical supplies, lab services and increasing labor costs.

The American Hospital Association points to the prevalence of high-deductible plans, inadequate health insurance offerings and the uninsured rate as key drivers of medical debt.

“While every hospital has a financial assistance policy to help those most in need, they can only help so much and so many,” the trade group said recently. “No matter how generous, hospital financial assistance will never be a substitute for a health insurance plan that covers preventive and necessary care at an affordable price on the front and back end of coverage.”

But insurance isn’t always the only culprit. Medical debt is a growing problem for seniors on Medicare. A May report from CFPB found that between 2019 and 2020 medical debt among seniors increased 20 percent to $53.8 billion. Having Medicaid alongside Medicare wasn’t much of a help even though seniors on the insurance program for people with low incomes should have little or no out-of-pocket costs, the report found.

“Medical debt, kind of like student loan debt, is all encompassing and affects so many people that it’s a mainstream issue that can no longer be ignored by legislators,” said Berneta Haynes, senior attorney at the National Consumer Law Center. “More and more state legislators are recognizing that … whether you are insured or not, you will likely at some point be dealing with medical debt.”

Pennsylvania State Rep. Arvind Venkat, a Democrat and emergency physician, sponsored legislation that would authorize state funds to be used to purchase and forgive medical debt. Pennsylvanians would be eligible if their household income is less than four times the poverty level or if their medical debt equals more than 5 percent of their income.

“I get emails and phone calls from all across the state, people who are not my constituents who say this is an important issue,” Venkat said. “No one thinks medical debt is a good idea. It’s a glitch in the system and it’s a worsening problem.”

Venkat was moved to introduce the bill, which passed the House with bipartisan support and is part of ongoing budget negotiations in the state Senate, because one of his patients died from breast cancer that she did not immediately treat because she feared the expense. That’s a too-common occurrence, he said.

“I am a physician. My wife is a physician. We are obviously affluent, but I guarantee if something catastrophic were to happen to us, our insurance would only go so far,” he said.

Venkat’s legislation is modeled on what several municipal governments have already done: use federal cash to purchase and forgive medical debt. During the past two years, places including Cook County, Ill., Toledo, Ohio, New Orleans, and Pittsburgh, the North Hills suburbs of which Venkat represents, spent more than $16 million in American Rescue Plan Act money to wipe out roughly $1.5 billion in medical debt.

New Jersey’s fiscal 2024 budget set aside $10 million in ARPA funds toward eliminating medical debt. Connecticut’s recently signed biennial budget directs $6.5 million to purchase medical debt.

Venkat’s bill also includes a provision that requires hospitals to let patients know about their charity-care program, make it easier for patients to apply for financial assistance and prohibits them from being charged until their application has been processed.

It’s similar to a section in Minnesota’s most recent state budget, which requires hospitals to see whether patients are eligible for charity care and to post notices about its availability.

Among the reasons for the flurry of action is a wave of media reports and constituent complaints about hospitals suing patients, putting liens on their homes, garnishing their wages or staking claim on their tax refunds.

Folwell, the North Carolina treasurer who is also running for governor in 2024, released a report in August that showed between 2017 and 2022, hospitals in the state filed nearly 6,000 lawsuits against 7,517 patients and won a total of $57.3 million in judgments. The average judgment was $16,623, with almost one in four judgments worth more than $20,000.

Nonprofit hospitals, which are exempt from most taxes in exchange for providing free or discounted care to those in need, were behind 90 percent of those lawsuits, according to the report, which was released jointly with Duke University School of Law.

“We are dealing with hospital CEOs who give the middle finger … to the IRS rules that say they are supposed to provide charity care equal to the tax benefit they receive,” Folwell said.

The majority of lawsuits in North Carolina — as well as in other states, according to various studies — result in default judgments, usually meaning the patient did not respond to a summons or appear in court. While the hospitals employ law firms that specialize in debt collection, most patients don’t have the money for an attorney to defend against a bill they cannot afford.

Folwell likened the system to a cartel. “They control the supply of health through the certificate of need process,” he said. “They control the access, they control the price and if you don’t pay your bills, they will break your kneecaps.”

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