Eight Legal Reforms To Help Put An End To Medical Debt

Reform #1. Resolve or Dismiss all medical debt lawsuits initiated by hospitals or collection agencies

Medical debt — unlike home mortgages, student loans, and auto loans — is almost never truly voluntary.

People who seek medical care are hurting; they come to the hospital on the worst days of their lives. It is immoral to squeeze them as though they just bought an overpriced wide-screen TV.

People who need health care are suffering. When someone is suffering, to compound their suffering by demanding payment feels immoral.

The presence of pain and chronic illness — and the threat of disability or death– can make patients uniquely helpless.

Many patients worry that their hospital bill—if accompanied by aggressive collection actions— will actually make them sick all over again.

The money that hospitals might receive from lawsuits makes an absolutely trivial contribution to the hospital’s bottom line.

In a recent six-year span, the University of Virginia health system filed 36,000 lawsuits against patients seeking a total of $106 million in unpaid debts.

But during this period, the UVA hospitals had gross revenues of at least $9 billion.

Community Health Systems, Inc, one of America’s largest hospital chains, filed at least 19,000 lawsuits against patients for unpaid medical bills from March 2020 to May 2021…yet 2020 was CHS’s most profitable year in a decade.

These hospitals were damaging patient’s lives for what amounted to chump change.

Hospitals and agencies are generally not suing wealthy people who won’t pay for plastic surgery. A JAMA study found that the most common employers of patients having their wages garnished were Walmart, Wells Fargo, Amazon and Lowe’s.

At the University of Pittsburgh Medical Center (UPMC) system, 36% of UPMC workers surveyed in 2018 were in debt to UPMC for medical care.

Debt collection lawyers can file hundreds of suits a day, often with little evidence that the alleged debt is actually owed. Once a lawsuit is filed, the process is stacked against defendants, the overwhelming majority of whom are not represented by an attorney. The collectors’ attorney’s fees and costs are added to any judgments, plus interest. Hospitals and their collectors nearly always win these cases, and have the right to garnish wages and sieze bank accounts.

Successful debt judgments can be enforced for 20 years, if necessary; some automatically place liens against patients’ homes, allowing creditors to collect their money when the home is sold.

The working poor are often treated the cruellest of all. Instead of being charged $2,000 at once for an ER visit, they might be charged $25 a month for the next seven years. If they didn’t repay on that schedule, then they would be charged interest at a rate of 10 or 11 percent. They already had late charges in court, and other fees to deal with.

More than 70% of debt collection cases end in default judgment against the debtor, usually because the debtor did not respond to the action or show up in court. Once the court enters judgment, the debt balloons from added court fees and accrued interest.

This needs to stop. Virtually all medical bills can be settled by negotiation. We must pay for a national team of ombudsmen, who can help debtors negotiate without the need to hire an attorney.

Impact of Reform #1 — I estimate that ending lawsuits could wipe out $500 million a year in medical debt.

Important note:

Some hospitals are far less aggressive on lawsuits.

Coastal Carolina Hospital won’t report credit, won’t sell patient data to an outside source, won’t deny nonemergency care based on outstanding medical debt, and will not sue to collect money owed.

At Boston-based Partners HealthCare, lawsuits and liens are “extremely rare,” spokesman Rich Copp wrote. They only happen when the health system has reason to believe the guarantor has the means to pay the bill. Partners does not use credit collection agencies. They have no lawsuits, no liens, and no credit reporting.

North Carolina is using Medicaid funds in a dramatic debt forgiveness program. Patients below 350% of the Federal Poverty Level (FPL), or for whom total medical debt exceeds 5% of income, will have any debt to participating hospitals relieved.

Reform #2. Penalize hospitals for abusive collections.

Over a five-year period, 25% of the bad debt at Virginia’s Mary Washington Healthcare and 50% of the bad debt at Methodist Le Bonheur Healthcare involved patients who were eligible for free or discounted care — but who were not told about the available assistance programs.

One hospital reputedly told its workers: “Never voluntarily offer patients a charity care application. If the patient asks you for one, you blow off that request and insist that they give you a deposit. You do that three times– if they ask you a fourth time, then OK, give them the application.”

Even when patients did manage to get charity care applications, the paperwork itself was so complicated that half the requests were rejected.

Any hospitals that cheated on its own charity guidelines should be punished…

For example: Providence, one of Washington state’s largest health care systems, must now forgive more than $137 million in medical debt, and refund more than $20 million to patients the company billed for services despite knowing they likely qualified for free or reduced-cost health care.

There is a reason that few hospitals want to discuss their financing cases: they’re embarrassed. Said one CEO: “They don’t want to be a part of it, because they have in their institutional memory that they are supposed to look after the welfare of their patients.”

Medical billing companies and collection agencies refer to hospitals as cash cows; the hospitals pay them monthly while still being able to see a marginal amount of what they billed you for in the first place, which is hundreds or even thousands percent more than it should reasonably cost.

There is a program in Medicare called “Disproportionate Share” to help defray the cost of treating those on Medicaid — but it needs a much broader scope, and at least $20 billion more each year to pay hospitals to forgive more debts.

(Actually, some of the most profitable medical centers — like those around Dallas-Fort Worth — have developed business models that allow them to prosper even if some of their patients can’t pay. Health insurers still pay a much larger share of hospital bills than patients do, even those with the highest deductibles.)

Reform #3. Medical debts must never grow with interest

It is common for medical debts to accrue 8 percent interest per year as long as they remain unpaid.

On an old $1,500 debt, there can be $500 in interest. In a recent case, a patient was sued for $8,000 in interest on top of their $31,000 bill.

This is pure financial sadism. Whenever such debts come up for collection or resolution, we must immediately erase any interest that has been charged on the debt itself. The government will buy debts at their original amount, not a penny more.

Some states have new regulations that aim to regulatge “exorbitant interest rates on outstanding debt.” Good for them, but in my view any interest rates are exorbitant!

Tacking on interest is a key incentive for the private collection firms that purchase medical debt. If this incentive disappears, good riddance.

Impact of Reform No. 3 Over several years this reform could save over $20 billion, if we buy out medical debts as described below. Stripping away interest from student loans would likewise be a huge debt reducer in that arena.

Reform #4. Buy out many of the largest debts – over $10,000 — that will never be repaid

The federal government can use the basic formula of Undue Medical Debt, which has been paying off medical debts for pennies on the dollar.

The government would apply at least $1 billion to buy old, inactive debts from hospitals – and eventually, from collection agencies as well.

To be eligible, the debtors must earn less than 350% of poverty, and the debt must be at least 5-10% of their annual income. The proper standard could be “If you can repay your debt in five years using 5% or less of your after-tax income, then start a payment plan…..Otherwise, you may qualify for a buyout.”

Much of this debt is overpriced, unfair and unlikely to ever be paid. Did anyone really expect that a person with a part-time job could pay a $45,000 hospital bill? Was $45,000 even an honest amount, as opposed to a negotiating ploy for insurance companies?

$1 billion to remove old debts – and smaller amounts each following year – is small potatoes compared to other federal health programs. (This would be reliable funding, too — Undue Medical Debt depends on charity, and leftover Covid subsidies.)

Selling off debts that will never be collected can actually benefit hospitals in public relations. Hospital collections fall off drastically anyways, once the out-of-pocket bills reach $7,500.

(Note: This is not perfect debt relief. By the time of such buyouts, the indebted patient has already been hounded by bill collectors and had their credit rating affected. Debt relief is better if it comes much sooner in the process.)

Impact of Reform #4 – I estimate that in just the first year of this policy, we could wipe out over $30 billion in medical debt.

In addition-– Medical debt forgiveness must be totally income-tax free. Otherwise the debtor winds up owing the IRS — after years of owing the hospital.

It is reasonable to ask why we do not wipe out every medical debt, large or small, while we’re at it. That’s what Bernie Sanders and Ro Khanna propose in their Medical Debt Cancellation Act.

I disagree, for these reasons:

1. Independent doctors and dentists generally deserve to collect their unpaid bills. In fact, I would support federal payments to help cover bad debts for small practices.

2. I would love to forgive or at least reduce the medical debts that are embedded in credit card balances. This is estimated to be 19% of overall medical debts.

For example, many people will put a medical bill that they can’t afford on their credit card, and then they carry that credit card balance from month to month, usually at a very high interest.

The trouble is, I can’t figure out any easy way to un-do the damages.

When a patient uses a credit card like VISA to pay for drugs or clinical care, these expenses are merged with everything else they buy. The interest charged is totally mixed as well.

Perhaps the individual could document when they used their card to pay medical bills. We could add 18% interest, and then the government would make a cash payment to the card company to retire the medically-related debt.

This would not be simple or inexpensive, though. The cost is no longer pennies on the dollar.

3. If all debts to all providers were erased – and no more debts were allowed – providers would have to make everyone pay “up front”.

This might be just as ugly as the world we have today.

Medical offices would restrict available appointments to those who can pay in full. Patients who lack money or credit would have to wait for charity.

Medical debt does have one virtue– it lets you get care right away, and pay for it over time. Getting your heart stabilized or your cancer addressed quickly— even if this leads to debt, and even to potential bankruptcy – may be better sometimes than waiting many months for free treatments in a socialist system.

I have been through bankruptcy, and I have been through cancer……and I would choose bankruptcy every time. I see nothing scandalous about a million extra bankruptcies a year. The threat of bankruptcy makes hospitals settle debts sooner, as they know they’ll get nothing after a full Chapter 7.

Bankruptcy declarations are not a moral failure, though some people still feel that way. They are a tactic to fight back against bad luck and/or corporate greed. For all his vices, Donald Trump understands this perfectly.

Per sociologist Monica Prasad:

“The United States offers families more sanctuary in bankruptcy at the same time that it permits a wide-open consumer credit economy coupled with less protection from the economic consequences of other problems such as job losses, medical problems, accidents, and family breakups. … The European and Canadian approaches, by contrast, make the game safer – by making credit access and bankruptcy more difficult, but by providing extensive social safety nets.”

Reform #5. If a health insurance claim is denied, the patient will have no liability.

If the insurer refuses to pay for a certain test or surgery – after it has been performed – this must not create a debt for the insured.

This has been the case in Medicare for years. When the Medicare reimbursement does not cover the full cost of care, the hospital normally covers the difference.

The provider accepts what the insurer pays, and that’s the end of the story.

Claim denials may indeed be caused by fraud and bad faith from insurers ….but then let the doctors and insurers fight these out, with no hardship to patients. For patients, this means no more balance bills due to claim problems.

New York seeks to force insurers to be more judicious with denials, and would fine them up to $1 million per case if more than half of appeals filed with regulators are overturned in a year.

I cannot estimate how much medical debt could be wiped out by this reform. Some claims are first declined and then re-filed successfully.

Reform #6. Ambulances should be free

Ambulance service should be a government function, paid for by taxes, no different than fire or police. (This applies to air-ambulances also.)

Until the 1990s, many communities depended on tax dollars to operate their vehicles.

Then cities stopped approving EMS tax levies, and the gap in costs had to be made up somehow. So ambulance services began billing patients and their insurance.

Most ambulance providers are not part of health insurance networks. As a result, ambulances can charge the patient for any part of the bill that insurance does not pay.

The public cost to federalize ambulances would be about $3 billion a year, which is a rounding error in federal health spending.

Ambulance fees paid by the government could be capped at the standard Medicare amount of $450, perhaps with an increase of 20%.

(We could allow a $50 user fee for the riders, in order to discourage the use of ambulances for non-urgent rides to the drugstores or to doctors’ appointments. There also could be a $1000 user fee for air ambulances.)

It is better for us all to pay a few dollars a year in extra taxes, versus a tiny number of us to be stuck with a huge ambulance bill. Medical transport should be a public service, instead of another industry on the take.

Note that we pay our basic fire departments collectively, with taxes. That way, firefighting can be provided without creating personal debt.

Americans pay ridiculously high prices for things that are provided by the public sector in other developed countries. Here, ordinary people must incur debt in order to access what could and should be publicly financed goods.

Impact of Reform #6: I estimate that this reform should wipe out over $1.5 billion in medical debt each year.

Reform #7. Help workers pay their deductibles and coinsurance

At least 58% of the patients with medical debt actually have health insurance.

Unfortunately, a growing number of policies have high deductibles, merciless coinsurance and high out-of-pocket limits. For the millions of Americans who have no savings, this results in medical debt whenever they have even a medium-sized claim.

For example: On my local ACA exchange, a new Silver plan for a 40-year old has a “$4,000 deductible, plus 50% coinsurance after the deductible”.

Which means that on the first $10,000 hospital claim under this policy, the insurer will pay only $3,000. (This is called a “70 per cent plan,” through some actuarial gibberish….I consider it a 30% plan for most of its subscribers.)

The premium for this garbage is $478 per month, without subsidies, and the proposed insured is a long way from getting Cost Sharing Deductibles.

Note:

In California, Colorado, Maryland, Massachusetts, Minnesota, New York, Vermont, and New Mexico, an income of $31,300 or less ($62,000 for a family of four), will get you a solid Obamacare-style policy if you have no employer coverage. The deductibles are small or non-existent, there is often no coinsurance, and the out-of-pocket limits may be capped at $1,000. Many expensive services require only a $50 co-pay.

The income limits are much higher in California and Massachusetts. Even in the red states, health insurance is essentially free if you attest to a low income (and no one checks.)

However:

These generous benefits are painfully unavailable to the larger group of workers anywhere, who may have a higher income but have porous workplace insurance.

The ACA “firewall” prevents virtually all workers from accessing better public coverage. Without the firewall, a family that earns $50,000 a year could get comprehensive coverage in the ACA marketplace for only $229 per month,

They’d also be guaranteed a plan with much lower deductibles.

In the bluest states like California, illegal aliens probably have better health plans than American workers.

We must help the vast majority who have skimpy health plans, and who must cope with the economic burden created by high deductibles.

Employers can be caught in the middle on this. They may be faced with large premium increases at renewal time, and they don’t have much time to respond….…

If the employer then raises the deductible, the premiums will not go up so fast; but the employees with health problems will suffer when they have a claim.

And yet, if the employer keeps the low deductible, then everyone will face higher premiums.

Hospitals are also caught in the middle. The deductibles have become a significant part of their revenue. Even if they wanted to forgive the patients’ share, and live on just what the insurer pays them, this might not be fiscally sustainable.

High-wage America can stumble through this scenario…… but low-wage America is ravaged by medical debt instead.

This does not need to happen. In France, a doctor visit costs the equivalent of $11.12. In Germany, a night in the hospital costs roughly $11. German co-pays for the year cannot exceed 2% of income.

A 2018 Census Bureau survey found that 79 percent of medical debt is held by American households with zero or negative net worth.

These households are best described as “ALICE—Asset Limited, Income Constrained, Employed – They might be earning above the federal poverty level — yet they struggle to afford basic expenses. ALICE households live paycheck to paycheck and are often forced to make impossible choices: pay the rent or buy food, receive medical care or pay for child care, pay utility bills or put gas in the car.

If they have a car loan or a home loan, plus rent to pay, they are frequently behind on their obligations. Their medical debts often come from everyday transactions under $300 apiece. Medical bills are often just the tip of the iceberg in personal debt.

Deductibles are not just a financial problem – they can become a medical problem.

According to the Commonwealth Fund, copays and deductibles worsen blood pressure control. They appear to lead to more recurrent vascular events after heart attacks.

High deductibles cause women with breast cancer to delay imaging, biopsies, and even chemotherapy.

When copays are high, seniors with multiple sclerosis and rheumatoid arthritis go without critically important drugs that keep their diseases at bay. Cost-sharing can cause asthmatics and those with chronic obstructive pulmonary disease (COPD) to avoid taking their inhalers — likely driving worse disease control and an increase in hospitalizations.

For now, the federal government can do the following

1. Create a legal definition of “pre-deductible services”…..for example, urgent care, facility fees, devices like inhalers, and ER visits would carry no deductibles (just co-pays).

In Massachusetts, state Sen. Cindy Friedman has proposed legislation to exempt all maternity bills from copays, deductibles, and other cost sharing. Health insurers warned that the proposal will raise costs, but an independent analysis estimated the bill would add only $1.24 to monthly insurance premiums.

2. Drop the ‘firewall’ that excludes a worker from using the ACA marketplace if they have access to virtually any employer health plan.

With this reform, any worker who makes less than 250% of poverty could see a huge improvement in their plan, with monthly costs under $200 and far lower deductibles.

This would enrage Republicans, because the federal budget impact would be at least $70 billion a year in additional ACA expenditures…i.e. it is not likely to happen.

3. We could create a federally subsidized “gap insurance” plan

For a modest premium, all deductibles would be covered. These plans will lose money, and the government can sustain them. France has relied on such arrangements for decades; and we do this for seniors, with Medicare Advantage subsidies in the billions.

Any serious health insurance reforms are going to require federal dollars. Otherwise, making policies more generous can just lead to higher premiums.

If a gap policy costs $300 a month and the government covered $200, we could issue 10 million such policies a year for about $25 billion. The free market is not going to solve this.

Those with medical debt are sometimes blamed for their bad choice of buying substandard health insurance, or for not purchasing any health insurance at all – and not having any savings to compensate.

In this view, the consequences of medical debt are rightly visited on the debtor. Whatever the impact — canceled credit cards, low credit, wage garnishment — it’s on them. If a person decides not to buy health insurance, they are making a bet on their health – and should have to pay the consequences if they get sick. “Personal responsibility” is the watchword.

This belief enables conservative support for the coming cutbacks in Medicaid, and for the shuttering of the Consumer Financial Protection Bureau – which was going to remove all medical debts from credit reports.

Conservatives generally don’t care that Medicaid expansion after 2012 was everywhere associated with fewer unpaid bills, fewer evictions, and many fewer bankruptcies. But Medicare recipients don’t vote in large numbers, so their rare good fortune is ignored.

Reform #8 – Establish Health Courts for the review of medical bills

If a patient wants to challenge their medical bill — whether for errors or price-gouging — these 50 new state health courts would have legal authority to intervene.

We will need new judges to assess fines, stop harassment, conduct audits, and even order federal takeovers of the most dishonest and greedy providers.

Patients should be able to contest any bill over $500, if they have not given ‘informed consent. All court costs and salaries will be paid by the government, and the patient will not need an attorney.

There will be a free ‘ombudsman’ service (as Medicare already has) for guidance to patients.

Here is a sample of potential Health Court cases :

Outlandish charges for simple diagnostic tests (i.e. $5000 for an echocardiogram)
$50,000 in charges for an air ambulance trip and three night hospital stay
$35,000 for an artificial knee that costs about $700 to produce
$20,000 for a pacemaker that costs about $6,000 in the US, and $1,000 in India
$4,000 for a drug infusion that costs $500 in Britain, France, or Germany
$12,000 for an “operating room” to conduct a 20 minute surgery
$15,000 for a ‘Trauma Activation Team” to help with an ER admission
$20,000 for an anti-venom inoculation that costs the hospital about $200.
Extra charges because a doctor inadvertently referred you to a non-network provider
Extra charges because the provider used a higher “severity” code when coding the claim.
(You can still go to Health Court even if you are insured. For example, if your high-deductible insurer left you with a bill for $2000 for a simple echocardiagram, you still have a grievance.)

These courts will not recognize the ‘authorizations’ that patients often sign in the hospital –which legally obligate them to pay the chargemaster rates.

All bill collections will be suspended for up to 150 days while a patient is waiting for a decision in health courts.

The providers cannot collect any late fees on unpaid bills during this process. We do not care if thousands of medical bills wind up sidetracked in courts. In every single case the providers have been “asking for it.” Their business model is well worth destroying, if it relies on the exploitation of helpless patients.

Many hospitals eventually forgive their chargemaster rates even now, if they are challenged by attorneys and journalists….but this is a brutal and wasteful way to conduct business. It is closer to a John Grisham movie than to Florence Nightingale.

Patients are being put through mental torment for nothing.

Dr. John Goodman suggests new regulations rather than health courts:

“At a minimum, we should let the debt be reduced to the hospital’s cash price (announced in advance to the uninsured) or to a national free market price charged, say, to Canadians and other medical tourists.”

“In addition, we should adjust the debt to some reasonable percent of the patient’s income, to reflect the fact that hospitals receive an enormous amount of federal money to provide charity care for low-income patients.”

Impact of Reform #8: My estimate is that health courts could wipe out $2 billion in medical debt each year.

I grant that it is possible today for a patient to sue their hospital for “unfair trade practices” i.e. overbilling and harsh collection tactics.

But these lawsuits are few and rarely successful. Plus the patient bears all the expense. Lawsuits against insurance companies over medical claims are even less successful.

Some states are already dealing with the issue of informed assent, which would be key to many court cases. Providers in Alaska, Maine, Minnesota, and Vermont now have to provide price estimates upon request, including care provided in a hospital.

In Florida hospitals must provide price estimates within seven days, and Massachusetts has had a robust price transparency law since 2012. Rhode Island requires price disclosure for those without insurance or for those with a deductible of $5,000 or more.

SUMMARY

The financing of health care in America has two competing models……..

#1 –The Bernie Sanders model, which features:

Paternalism – you get health insurance whether you choose it or not
Sympathy for the poor, minorities, and migrants (As John Rawls says, you never know when you might be among them)
Large payroll taxes
No pre-existing conditions clauses
Hospitals are financed by taxes, not user fees
Patients are not in debt (though governments often are)
Price controls and (if necessary) rationing
Programs are situated at the federal level, to avoid states undermining them

The Sanders model accepts the use of coercion to pay for health care. Forcing all people to pay taxes is not categorically worse than forcing some of them to pay medical debts.

(For that matter, the Singapore health model that is praised by conservatives is also filled with coercion – including taxes to support public hospitals, forced savings for HSA’s, and more taxes for catastrophic insurance.)

At some point we are all going to get sick, so letting us decide when to buy insurance is somewhat of a fool’s paradise. The nations that have universal coverage also have mandatory enrollment, and mandatory premiums.

America would clearly benefit from forced savings — for example, a mandatory HSA deposit of 3% of income would pay off quite a few of the medical debts discussed in this essay. The “freedom” to buy inadequate health insurance is not serving us well.

#2 The Paul Ryan-Republican-Libertarian model, which features:

Based on individual choice
No mandates on employers to provide quality coverage
No mandates on individuals to buy quality coverage; if they want to gamble going uninsured in order to save money, that is their call.
Hospitals financed by user fees, insurance premiums and private savings – not taxes
No interference with anyone making money on health care
Cost control through competition – faith in free markets
Gives discretion to the states to either help or undermine the programs
Public programs (if any) are heavily means-tested. This reduces the number of beneficiaries, plus it creates huge resentment among those who earn just a few dollars over the limit
No American has a right to the resources of another American. Ideally there would be no government funding of health care at all, and no government subsidies for health insurance.

The Ryan model gets frankly Darwinian, though this is never revealed. The uninsured are usually people who make mistakes – like poor budgeting, failing in school, losing their jobs, or being born to non-rich parents.

In this model, persons with no money get much less care, and will die sooner. Those who do not buy insurance when they are healthy will suffer later on. Eventually it all starts to sounds like “culling the herd.”

The Ryan model therefore expects a lot from private charity. (Begging is preferable to new taxes.)

FINAL NOTES

1. There was no ‘golden age’ when health care financing was simple and comprehensive.

Ugly conflicts over providers getting paid are not unique to the 21^st century……

Doctors in farm communities worried about going bankrupt themselves, according to their letters and diaries before 1940.

Poor patients were expected to work off their debt as soon as they were ambulatory. You could see new mothers washing floors in New York hospitals.

In poor African nations right now, hospital patients cannot go home until their relatives show up and pay the bill. The central governments are too weak and corrupt to fund health care.

In 1995, Danville Regional Medical Center in Virginia gave poor patients the option of entering a “Service-Credit” program — where patients owing between $300 and $20,000 were put to work typing, filing, housekeeping, lawn care and working in the print shop. For their labor, they earned $5 per hour toward settling their debts. “

2. It is not just patients who carry medical debt.

America uses debt to help finance medical education, and to finance hospital expansion.

It is common see a doctor (who is in debt) treat a patient (who is now in debt) at a hospital or clinic (that is itself servicing debt.)

At least half of health care is paid for by Medicare, Medicaid, or the Affordable Care Act – all of which rely to varying extents on deficit spending in Washington, i.e. the national debt.

What all these debts have in common is a reluctance to do straightforward public funding. We constantly encounter “the high cost of low taxes.”

After all:

It should not be hard to devote $9 billion a year for free medical training, so that doctors have no debt which they must carry for years…..
It should not be hard to vote $50 billion for new hospital facilities every year, so that facilities would carry much less debt….
It would be difficult – but not impossible- to spend $70 billion a year helping workers pay off deductibles and copays.The Hillary Clinton campaign in 2016 very quietly proposed giving any family a tax credit of $5000 to deal with medical debt.

Eight Reforms To Wipe Out Billions In Medical Debts