Medical debt is crushing many Americans. States can help fix that

The Trump administration’s efforts to dismantle the Affordable Care Act are making health insurance less affordable and less accessible, and will almost certainly increase the number of Americans struggling with medical debt. State policymakers can and should act now to protect consumers from crushing medical debt and aggressive debt collection practices.

Medical debt accrues when a patient must pay for care that isn’t covered by insurance or is only partly covered. It is one of the most common types of consumer debt. A Consumer Financial Protection Bureau study found that 20 percent of Americans have at least one medical debt collection item in their credit reports, and more than half of collection items on credit reports are for medical debts.

To collect these debts, health care providers and collection agencies sometimes use aggressive collection techniques, ranging from reporting the debt to credit reporting agencies to making frequent phone calls demanding repayment or even garnishing patients’ wages or filing liens on their homes.

Medical debt arises from many frustratingly common scenarios faced by low- and moderate-income patients. For instance, a woman goes to the emergency room after injuring her arm. An X-ray shows that it is broken. A doctor resets the bone and creates a cast. But she is later surprised to receive a hefty bill from the radiologist who read the X-ray for the full cost of interpreting the images. The hospital was within her health insurance network, the radiologist was not.

Another scenario: A man takes a new job with an insurance plan that includes a cost-sharing requirement of $7,000 per year. At the beginning of the year, before he had a chance to put much money into his health savings account, he needs outpatient surgery and must pay a $1,500 deductible plus 20 percent coinsurance, leaving him with more than $4,000 in medical bills that insurance will not cover.

The United States is the most expensive country in the world in which to be sick or injured. Debt coupled with high health care costs are problems for the uninsured and the underinsured, whose family budgets can’t sustain high premiums or out-of-pocket costs along with other basic living expenses. Even patients with insurance report cutting back on food, clothing, medical care, basic household expenses, and retirement savings in order to pay medical bills and medical debts.

The ACA helped diminish medical debt in several ways. States that expanded Medicaid under the law saw a 40 percent drop in medical debt. To provide an extra cushion against high health care costs, the ACA created a requirement that nonprofit hospitals adopt financial assistance policies and fairer debt collection practices. While this represents a significant step forward for consumers, those ACA protections do not apply to for-profit hospitals and other types of large health care provider organizations.

As reported by the Kaiser Family Foundation, for-profit hospitals and hospital chains are widespread and in some states (such as Florida, Nevada, and New Mexico) outnumber nonprofit hospitals. When choosing a hospital, most patients are unlikely to be aware of the difference.

In its Model Medical Debt Collection Act, the National Consumer Law Center is proposing common-sense state law reforms that build on the financial assistance provisions in the ACA. These include setting baseline standards for determining eligibility for financial assistance that will include low- and middle-income families that have insurance; requiring for-profit and other large provider groups to establish and make public their financial assistance policies; and setting standards for fair collection practices that apply to all health care providers — not just hospitals.

These reforms will make it possible for low- and moderate-income patients to pay reasonable amounts toward their health care bills while protecting them from harassment by debt collectors.

Hospitals and other large health care providers can — and should — help protect consumers from burdensome medical debt. State governments and hospitals can work together to ensure that patients are billed fair amounts for health care services and are given enough time to deal with a health care crisis first and resolve payment problems later.

While the federal policy debates rage, states should move forward now to strengthen rules for financial assistance and protect their citizens from unfair medical debt collection practices.

Jenifer Bosco is a staff attorney at the National Consumer Law Center, and was formerly the director of the Office of Patient Protection at the Massachusetts Health Policy Commission. John O’Brien is a senior fellow at Community Catalyst, a senior fellow at Clark University’s Mosakowski Institute, and the immediate past president and CEO of UMass Memorial Health Care.