Fed-Up with Medical Debt Owed to Hospitals, States and Municipalities Respond

By: Ranier Simons, ADAP Blog Guest Contributor

Medical debt is a significant financial burden in the United States. It affects both insured and uninsured adults. Medical debt encompasses the high bills consumers are saddled with, in addition to the credit card and other personal loan debt incurred while trying to pay the medical bills.[1] Approximately 100 million Americans hold $195 billion in medical debt, with most owing less than $1,000.[2] A previous ADAP Advocacy blog discussed how patients are even being failed by what is supposed to be charity care by nonprofit hospitals. Nonprofit and for-profit hospitals send patients into financial ruin using predatory collection agencies and other tactics.[3] Medical debt is unavoidable debt, often from singular emergent occurrences, dissimilar to other consumer debt incurred by choice. Realizing the need to help communities, cities have taken innovative measures to relieve their citizens' medical debt woes.

Photo Source: Urban Institute

According to the Urban Institute, over 74% of medical debt is owed to hospitals.[10] Hospital debt has become big business. Noam Levey, senior correspondent for KFF Health News, explains, “Our healthcare system is now generating medical debt on an industrial scale…And a good part of that is coming from not-for-profit health care.”[11] About two-thirds of hospitals will take legal action against outstanding debt, including collections, with some even denying non-emergent care for unpaid debt. Patients’ best interests are not at the forefront when a hospital denies access to needed care due to bills in arrears. Some hospitals have even placed liens on patients’ homes. Liens are an additional financial burden and affect generational wealth since one cannot sell or pass down a property saddled with liens.[3]

One route being utilized by cities is to take advantage of the existing system. Patients' unpaid medical debts are sold to collection agencies as bad debt for small fractions of the actual amounts. Customarily, collection agencies buy this second market debt cheaply and then try to collect as much as possible as profit. Several cities, including Washington, D.C., New Orleans, Louisiana, and Toledo, Ohio, have used funds to buy patients medical debt and forgive it.[2] A large portion of the funding municipalities have used to erase the debt is pandemic relief money. Some municipalities, such as Cook County, Illinois, have partnered with a nonprofit named RIP Medical Debt to purchase medical debt.[2,4]

Photo Source: KFF

Since 2014, RIP Medical Debt has abolished over $11.8 billion in medical debt for over seven million people.[5] With donations, they have purchased large bundles of medical debt at pennies on the dollar and then canceled the debts instead of trying to make a profit. They are contracting with cities and counties to do the same. RIP Medical Debt helps municipalities analyze their hospital systems' medical debts. They identify those with medical debts that are five percent or more of their income and or patients who are at or below 400% of the poverty level.[6] People cannot apply for assistance, nor do they have to. Once it is verified that criteria are met, qualified purchased medical debts are canceled, and beneficiaries are sent letters notifying them of their debt forgiveness. Over 16 cities, 12 counties, and seven states have expressed interest in collaborating with RIP Medical Debt.

Utilizing medical debt erasure is a significant relief to many. However, funding is limited, and it does not address the deeper issues. Many Americans are uninsured or underinsured. Many people with insurance have high-deductible plans, which place them in the guillotine of runaway medical expenditures. Additionally, many people can’t afford their high co-payments or coinsurance payments when they are stuck with receiving out-of-network care. Allison Sesso, President & CEO of RIP Medical Debt, expressed, “Across all health care services, the pricing is just way too high for people to afford, and we need transparency on pricing to make informed health care decisions.”[7]

Legislation is another avenue states are using to help with medical debt. While it’s not debt forgiveness, Maryland has laws that raised the income threshold for hospital care and prohibited wage garnishment or home liens in certain medical debt judgments.[2] There is a current bill being considered in Maryland, HB328, that “expands the number of patients receiving free and low-cost hospital care by ending arbitrary asset and geographic tests used by 27 hospitals to bar patients who were eligible for low-cost care’.[8]

Photo Source: CNN

States are also working towards preventing medical debt from ruining individuals’ credit. California Attorney General Rob Bonta is a sponsor of Senator Monique Limón’s bill, SB-1061, which would block healthcare entities and associated collections agencies from sharing bad medical debt with credit bureaus. If it becomes law, California would be the third state to remove medical bills from credit reports, following Colorado and New York, which enacted laws in 2023.[9] Hospitals and collection agencies have used credit reporting to force people to pay bad debts. However, credit reporting can result in the denial of housing and job applications and disrupt families’ financial lives with repercussions that lower quality of life and social mobility.[3]

Medical debt is not going away in the foreseeable future, nor are the high costs of medical care. The challenges of medical debt disproportionately hinder the lives of the poor, ethnic minorities, and other marginalized groups. Creating solutions to shield consumers from the ravages of medical debt is essential. However, dismantling the root causes of unregulated and disparate medical services pricing is paramount. Band-Aids of temporary relief do not override the foremost requirement of systemic change.

[1] Lopes, L., Kearnet, A., Montero, A., Hamel, L., Brodie, M. (2022, June 16). Health care debt in the U.S.: The broad consequences of medical and dental bills. Retrieved from https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/

[2] Biron, C. (2023, July 21). Americans owe billions in medical debt. Can cities help? Retrieved from https://www.reuters.com/article/idUSL8N38W2UP/

[3] Simons, R. (2023, November 30). Provider ‘smash and grab’ tactics fueling medical debt, hurting patients. Retrieved from https://adapadvocacyassociation.blogspot.com/2023/11/provider-smash-and-grab-tactics-fueling.html

[4] MacDougall, H., Tuttle, M., Henning-Smith, C. (2024, March 18). To address the crisis of medical debt, lawmakers should focus on Greater Minnesota. Retrieved from https://www.minnpost.com/community-voices/2024/03/to-address-the-crisis-of-medical-debt-lawmakers-should-focus-on-greater-minnesota/

[5] RIP Medical Debt. (2024). https://ripmedicaldebt.org/

[6] Walsh, J. (2023, April 25). Cleveland City Council approves medical debt relief; here's what that means. Retrieved from https://www.news5cleveland.com/news/local-news/investigations/cleveland-city-council-approves-medical-debt-relief-heres-what-that-means

[7] Vollers, A. (2024, February 22). Governments can erase your medical debt for pennies on the dollar — and some are. Retrieved from https://www.thelundreport.org/content/governments-can-erase-your-medical-debt-pennies-dollar-and-some-are

[8] End Medical Debt Maryland. (2024, February 14). Testimony to the House Health & Government Operations Committee. Retrieved from https://mgaleg.maryland.gov/cmte_testimony/2024/hgo/1bQYmcYDHBKw2yjI4-IgapCig5mvNIusH.pdf

[9] Work, M. (2024, March 11). California attorney general boosts bill banning medical debt from credit reports. Retrieved from https://kffhealthnews.org/news/article/california-attorney-general-medical-debt-ban-on-credit-reports/

[10] Urban Institute. (2023, October 10). Debt in America: An interactive map. Retrieved from https://apps.urban.org/features/debt-interactive-map/?type=medical&variable=medcoll

[11] Thompson, I. (2023, September 5). Nonprofit hospitals pursue aggressive medical debt collection. Retrieved from https://nonprofitquarterly.org/nonprofit-hospitals-pursue-aggressive-medical-debt-collection/

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.