State Legislatures Turn Attention to Citizens’ Crushing Medical Debt

Medical debt is crushing Americans across the nation.

Recent surveys have found that roughly a third of working-age Americans are struggling with medical debt, while more than half of Americans have been unable to pay medical bills on time or in full.

Indeed, the federal Consumer Financial Protection Bureau found that $88 billion in debt was reported on consumer credit records as of June 2021.

In September, the Biden administration announced it is drafting new regulations to bar medical debt from appearing on consumer credit reports. Lawmakers in New York and Colorado have already enacted legislation to do the same.

And that seems to be just the beginning. Several state legislatures have pending measures to tackle Americans’ medical debt and the impact it has on their lives.

Lawmakers Seek to Keep Medical Debt Off Credit Reports

One significant area of focus for state lawmakers in relation to the issue of medical debt is keeping it from appearing on consumers’ credit reports and, consequently, impacting their credit scores. The legislation generally falls into three categories: 

• Bills that would prohibit health care providers from reporting medical debt to credit reporting agencies, including New Jersey AB 890 and Virginia HB 1370. Wisconsin AB 786 is a slight variation on this theme; it would prohibit health care providers from reporting that a debt is in collections. 

• Bills that would prohibit credit bureaus from including medical debt on credit reports, including Rhode Island HB 7103 and Virginia (HB 1265). 

Bills that would prohibit the reporting of medical debt by health care providers and credit bureaus, including Vermont (SB 217) and Tennessee HB 2017 and SB 1833. 

“(T)hese bills...in part show a growing distrust of the accuracy of the medical billing process,” attorney Rodney Miller of the Practical Guidance team for LexisNexis® said in an email. “From a healthcare perspective, these bills suggest that hospital and health system compliance departments must improve their oversight of their organizations’ billing processes.” 

Miller added: “This legislation focuses on the impact to consumers. Specifically, that medical debt (including but not limited to potentially unverified or inaccurate medical debt) is not an indicator of an individual’s creditworthiness."

“But the legislation also suggests hospital and health system fraud, waste, and abuse, which is being or will soon be targeted by federal and state healthcare agencies.”

State Lawmakers Focusing on Medical Debt Relief

Legislation aimed at providing consumers relief from medical debt is pending in at least 17 states, according to the LexisNexis® State Net® legislative tracking system. Among other things, the measures would set statutes of limitations for the collection of medical debt, prohibit the reporting of medical debt by health care providers and credit reporting agencies, as well as actually forgive such debt. 

Lawmakers Taking Plenty of Other Approaches 

The medical debt reporting bills are just the beginning of how lawmakers are addressing the issue. Other proposals include: 

• Florida HB 1549 and SB 1640, which would establish a three-year statute of limitations for collecting medical debt. 

• Indiana HB 1128, which would prohibit medical debt liens and Washington HB 2119, which would protect consumers from wage garnishment arising from medical debt judgments. 

• Maine SB 908, which would stop health care providers from selling medical debts for less than the total amount of the debt unless the provider has offered the consumer the chance to acquire the debt at the same reduced price. 

• New York SB 8373, which would exempt credit card debt from the state’s definition of medical debt, “unless the credit card is issued under an open-ended or closed-end plan offered specifically for the payment of health care services, products, or devices provided to a person.” 

• Oklahoma HB 3576, and HB 4148, which would establish new rules for collections and default judgments of medical debt. 

“It’s just a flurry of activity across the board,” said Eva Marie Stahl, vice president of Public Policy & Program Management at RIP Medical Debt, a Long Island-based nonprofit dedicated to eliminating personal medical debt. She said there’s a lot of “innovative” ideas being proposed across the country to address this surging concern.

Several Factors Potentially Contributing to Rising Medical Debt

What’s driving Americans’ skyrocketing medical debt?

In March, a report by the Urban Institute and the Robert Wood Johnson Foundation attributed at least part of the blame to hospitals, reporting that “Most Adults with Past-Due Medical Debt Owe Money to Hospitals.”

A couple months later, the American Hospital Association in turn pointed the finger at insurance companies offering “high-deductible health plans that intentionally push more costs onto patients.”

Indeed, KFF (formerly known as the Kaiser Family Foundation) found that in 2022, the average annual deductible for an American enrolled in an employer-based health insurance plan was $3,811 for family coverage and $1,922 for single coverage.

A report by the Consumer Financial Protection Bureau found that from 2019 to 2020, the amount of unpaid medical bills for seniors on Medicare rose from $44.8 billion to $53.8 billion, suggesting yet another possible root of the problem.

Miller of the Practical Guidance team for LexisNexis® also noted that in the past, medical providers’ “bad debt” typically came from self-paying patients. Now they have bad debt coming from those who are insured. He said that’s because those insured patients may be insured in name only. They’re taking on the bulk of the risk through co-pays and high deductibles, forcing them to pay quite a bit up front.

Whatever the cause, the debt load is heavy, with KFF estimating in 2022 that Americans owed “at least $195 billion in medical debt.”

“It’s sort of a critical mass, everyone would like some sort of adjustments for different reasons,” Miller said.

So, it’s no wonder state lawmakers are taking action, especially since agreement on the path forward at the federal level can be difficult.

“It’s difficult to move this forward at the federal level because, at first glance, it seems like it’s simple,” said Stahl of RIP Medical Debt. However, she said, fixing the issue “requires a bunch of stakeholders to come to the table” who don’t normally come to the same table to negotiate.

“It’s a big lift,” she said. “And it’s easier at the state level.”

—By SNCJ Correspondent BRIAN JOSEPH

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