While student loan debt grabs spotlight, medical debt looms large

As the debate swirls around the potential for student loan debt forgiveness, a lesser-recognized but nonetheless persistent form of debt — medical debt — is getting a lot of attention from policymakers, credit rating agencies, and the health care industry. That’s because even prior to the pandemic, medical debt had become the largest source of debt in collections.

For those who suffer from this sometimes unexpected and debilitating form of debt, though, some relief is on the horizon.

In a column I wrote earlier this year, I discussed new patient protections from surprise billing by out-of-network health care providers under the federal No Surprises Act. Although the law has already seen multiple legal challenges by health care providers that are pending before the courts, patients should begin to feel the impact of the law’s protections this year.

In April, the Biden administration announced the U.S. Department of Health and Human Services would collect data from health care providers including information on debt collection practices and financial assistance offered to patients. The announcement indicated the data would be used in grantmaking decisions by the agency, to provide more transparent information about these practices to the public, and for referrals to enforcement agencies for potential regulatory violations.

The announcement also indicated the Consumer Financial Protection Bureau (CFPB) would be stepping up investigations into unlawful medical debt collection and reporting by credit reporting companies and debt collectors. A March report on medical debt by the CFPB prompted the three nationwide credit reporting agencies to change medical collection debt reporting. According to the companies’ joint statement, beginning in July 2022 paid medical collection debt would no longer be included in credit reports, and the time period before unpaid medical collection debt would appear on a credit report would be increased from six months to one year. For the first half of 2023, medical collection debt under $500 would not be included on credit reports. Going forward, the CFPB will be examining whether medical collection debt should ever be included in credit reports.

A recently published analysis of the U.S. Census Bureau’s Survey of Income and Program Participation found that 23 million adults in the U.S. — nearly one in 10 — reported owing significant medical debt (which the analysis categorizes as more than $250) in 2019. About 16 million adults (6%) owed over $1,000, and three million adults (1%) owed more than $10,000, according to the report. While medical debt occurred across all demographic groups, people with disabilities, those in worse health, low-income adults, and Black Americans were more likely to experience significant medical debt.

“Oh, but that’s really only a problem for those without insurance,” you might say. But even those who are insured — particularly those who are under-insured (those whose out-of-pocket costs exceed a set income threshold) — can face unmanageable medical debts. Sometimes medical bills may be turned over to collections because of coverage or billing disputes, because, well, health care is complex.

The Internal Revenue Service requires nonprofit hospitals to establish written financial assistance policies and provide a 240-day grace period for patients to apply for financial assistance. Hospitals may also offer income-based charity care or interest-free payment plans for bills that may exceed available cash on hand, although some hospitals struggle with the administration of payment plans internally. I’ve been on an interest-free payment plan for the last seven months myself, and I’ve found it to be a much better alternative than the credit card route.

Some states are pursuing their own actions against medical debt collection practices. In 2021, Colorado and New Mexico passed laws requiring hospitals to determine whether a patient qualifies for Medicare, Medicaid or charity care before sending a bill. Ten states fill a gap in federal law by applying surprise billing protections to ground ambulances. The Colorado House of Representatives has overwhelmingly advanced a bipartisan bill that would prohibit a hospital from pursing debt collection against patients while the hospital is not in compliance with federal price transparency requirements.

I wouldn’t expect to see these efforts to address medical debts to result in fewer GoFundMe posts seeking help with medical debt, but they are a good start toward preventing Americans with medical debt from being subjected to lawsuits, wage garnishment, home liens and other aggressive debt collection practices. Increased transparency and more robust data collection are necessary to better understand medical debt collection practices and inform policy reforms. In the meantime, we should work to ensure that the health of Arkansans is not damaged by disrupting their financial well-being.

Editor’s note: Craig Wilson, J.D., M.P.A., is the director of health policy for the Arkansas Center for Health Improvement, an independent, nonpartisan health policy center in Little Rock. The opinions expressed are those of the author.