Two in five Americans have outstanding health care bills, according to the Kaiser Foundation. Those with payments overdue are more likely to be uninsured, low-income, and either Black or Hispanic. What’s more, the total amount of outstanding medical debt in the United States is much bigger than people think. ~~~~~~~ Most states have not yet enacted laws preventing the accrual of medical debt, but many have implemented protections for people who already have accumulated debt. In light of this . . . Earlier this summer, the Biden administration announced updated guidance on medical debt. In addition to a proposed federal rule to prevent medical bills from being included in credit reports, the administration recommended that states take action
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Two in five Americans have outstanding health care bills, according to the Kaiser Foundation. Those with payments overdue are more likely to be uninsured, low-income, and either Black or Hispanic. What’s more, the total amount of outstanding medical debt in the United States is much bigger than people think.
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Most states have not yet enacted laws preventing the accrual of medical debt, but many have implemented protections for people who already have accumulated debt. In light of this . . .
Earlier this summer, the Biden administration announced updated guidance on medical debt. In addition to a proposed federal rule to prevent medical bills from being included in credit reports, the administration recommended that states take action to prevent accumulation of medical debt, limit coercive debt collections practices, and purchase and eliminate medical debt.
Since publishing our report on state laws governing medical debt, at least 12 states have taken further action to strengthen protections for consumers. Most states have been reluctant to enact laws preventing the accrual of medical debt — for example, by expanding eligibility and generosity requirements for financial assistance. However, many have implemented protections for people who already have medical debt while other states have pursued buying and forgiving medical debt. This blog post updates state action related to protections enacted between September 2023 and the end of July 2024.
New York Strengthens Its Financial Assistance Standards
Of the 12 states that have recently enacted medical debt legislation, New York is the only one that has strengthened its existing standards for hospital financial assistance programs. The state now requires hospitals to make financial assistance available to patients whose out-of-pocket costs in the past year exceeded 10 percent of their annual income and prohibits discrimination based on immigration status. The state also increased the minimum amount of financial assistance hospitals must provide to eligible patients. For example, hospitals must now provide free care to all patients with incomes under 200 percent of the federal poverty level. These changes were enacted as a broader package that includes several other key protections.
States Further Regulate Billing and Collections Practices
To prevent the snowballing of medical debt, Delaware and Maine now prohibit creditors from charging interest on medical debt, while New Jersey and New York establish caps on interest rates. Delaware and New Jersey now require hospitals to offer patients reasonable payment plans while limiting the amount patients can be required to pay monthly. Delaware, New Jersey, and Florida also placed new restrictions on the sale of medical debt, while New York fully prohibited the practice.1
One area where states have been particularly proactive is in placing safeguards against or fully prohibiting the reporting of medical debt to credit reporting agencies. Six states recently enacted laws fully prohibiting the practice, while Delaware and Florida now require hospitals to fulfill certain prerequisites before reporting the debt. This state action follows a voluntary agreement by the three major credit reporting agencies to stop reporting any medical debt under $500 starting in April 2023. A later federal report found that despite this measure, 15 million Americans continue to have medical bills on their credit reports. Preventing medical bills from impacting credit reports has been a major focus for the Biden administration.
States Enact Protections Related to Medical Debt Lawsuits
Florida and Virginia now bar medical debt collection lawsuits unless they’re initiated within three years of the debt becoming due. Several states now require hospitals and debt collectors to meet certain conditions, such as ensuring a patient is not eligible for financial assistance, before they can initiate legal action to collect on medical debt. For example, Rhode Island and New Jersey now prohibit lawsuits where the debt collector knows or should know that the insurance coverage decision that contributed to the debt (e.g., a coverage denial) is still under review or being appealed.
States also have limited what creditors can take from patients through the legal process. Delaware now fully prohibits wage garnishment, while New Jersey prohibits it for those with incomes under 600 percent of the federal poverty level. Delaware also prohibits creditors from foreclosing on patients’ homes to collect on unpaid medical bills. Oregon has increased the amount of home equity protected from seizure.
More States Turn to Medical Debt Forgiveness
In addition to enacting these systemic protections, some states have joined cities and counties across America in buying and forgiving millions of dollars’ worth of medical debt. Such debt usually can be purchased for pennies on the dollar. New Jersey recently appropriated $10 million, which may be sufficient to cancel up to a $1 billion in medical debt.
Looking Forward
Both federal and state policymakers have indicated an interest in protecting patients from medical debt. New developments at the state level have mostly focused on providing downstream solutions that protect patients who have already incurred medical debt. With the exception of New York, states have been reluctant to enact policies that can prevent debt from accruing in the first place, such as creating minimum standards to strengthen hospital financial assistance programs. Fewer than half the states currently set a floor on how much financial assistance hospitals should be providing and to whom, but prevention is always better than cure. Recent research highlights the importance of focusing on systemic, upstream solutions along with protections for people already in medical debt.