Can We Ever Solve Medical Debt?

If you are concerned about medical debt, you have to start with the hospitals.

Of the six million Americans who owe more than $5,000 in medical debt, 72 percent attribute their debt to bills from acute care, such as a single hospital stay or treatment for an accident.

There is a movement to limit medical debt…..but it is inconsistent across the states.

That’s no surprise. The American hospital system has always been an unwieldy combination of private funding, public funding, federal and state regulations, and charity.

Medical debt is not inevitable, however.

People on Medicaid have no medical debt.
People with Medicare Supplements and Medicare Advantage plans have relatively little medical debt.
Canadians, Germans, Swedes, Italians, Israelis, Japanese – all have very little medical debt. They have mandates and taxes, and comparatively tiny deductibles.
The residents of Singapore also have no debt — hospitals are financed by the state, and ambulatory care is financed by forced savings.
The Amish have no medical debt or health insurance – they have their own version of forced savings.

We Americans are too cheap to establish straightforward taxes and make public hospitals free.

Instead, some of the worst offenders in harassing and suing patients are so-called ‘government hospitals’ — which actually rely on patient billing. A publicly-missioned institution tries to plug a public funding hole – effectively, by targeting the very people who public financing is supposed to help.

This article is a brief summary of governmental and private efforts at medical debt reform.

Part One – The Medicaid Solution

The expansion of Medicaid has been the best way – by far – to protect millions of people against medical debt.

In states that immediately expanded Medicaid in 2013, there was a 44% decrease in medical debt in collections over the course of 7 years.

Opponents of Medicaid secretly feel that Medicaid recipients are grifters – and undeserving immigrants– for whom poor health is just a part of poverty. These conservatives oppose federal expansions on principle, and health care is no exception. They would prefer private charity.

Liberals generally favor mandates and yes, if needed, tax increases. Liberals are a lot closer to the Golden Rule on health care. Liberals believe that the state can find a way to prevent financial hardship from health care.

If you are a citizen or are legally present in the USA, Medicaid is normally available if your income is less than the following:

Single Person 2 person household 4 person household

Income under $20,120 $27,214 $41,400

HOWEVER– If you live in Alabama, Florida, Georgia, Mississippi, Kansas, Texas, Tennessee, Wisconsin, Wyoming, and South Carolina, you can only get Medicaid if you are low-income and are pregnant, elderly, disabled, a parent/caretaker or a child.

All other poor adults under age 65 are basically on their own in those states. All statistics indicate that this generates high levels of medical debt.

Even in the more generous states, Medicaid can be temporary. If you get a raise or a better job, you’re required to tell the government and you can lose coverage at the end of the month. You have to convince the government that you and your family are deservingly poor enough to warrant health insurance at least every year. These ‘fiscal cliffs’ can be discouraging and destructive.

Part Two – Federal Guidelines for Charity Care

Federal tax law requires that nonprofit hospitals must provide ‘community benefits’ as a condition of receiving tax-exempt status.

However, hospitals have broad flexibility to establish their own definition of ’community benefit.’

Community benefits does not always mean charity care. Hospitals have been taking charitable credit for “addressing social drivers of health,” for underwriting medical research, for providing professional education, and for subsidizing burn and neonatal units. Some hospitals count underpayments by Medicaid, as well as losses due to unreimbursed Medicare as ‘community benefits.’

Ultimately it is unclear what share of low-income patients end up benefiting from these programs, or what share of their costs are covered.

In 2020, for example, nonprofit hospitals received about $28 billion in tax benefits, but only spent about $16 billion on free or reduced-price charity care, according to the Kaiser Family Foundation.

UPMC Hospital in Pittsburgh has been credibly accused of spending $246 Million less on charity care than it harvested in tax breaks, in one year. That deficit could have been used to clear the medical debts of many low-income patients.

It appears that tax exempt hospitals sometimes provide less charity care than for-profit institutions.

There is no public agency in most states that is charged with enforcing the provision of financial assistance by nonprofit hospitals.

Besides– charity care alone cannot solve medical debt.

63% of the adults with past-due medical debt incurred it when they were insured. This large group would not be much impacted by any increases in charity care.

Part Three – Financial Assistance

The Affordable Care Act required nonprofit hospitals to establish financial assistance policies as part of their community benefit activities.

The aid that does exist has developed on a state by state basis. As the primary regulators of hospitals, states can require hospitals to provide more financial assistance to low-income residents.

The assistance often consists of free care for those with the lowest income, and then discounted prices for incomes between poverty and a higher limit.

Some states provide extra taxpayer funds to hospitals for their programs of financial assistance.

For example, in New Jersey, the Health Care Subsidy Fund allocated $319 million in 2022 to hospitals for financial assistance. In Massachusetts, payments from the Health Safety Net in 2019 amounted to $387 million.

Twenty states require hospitals to provide financial assistance and set certain minimum standards that exceed the federal standard .

Here is a summary of the current ACA-inspired guidelines:

States	Guidelines
California, Colorado, Delaware, Florida, Ohio, Oklahoma, South Carolina	Only require that hospitals make some unspecified amount of financial assistance available to those at or below a certain percentage of the federal poverty level (FPL). Eligibility thresholds range from 100 percent of FPL (Florida, Oklahoma, South Carolina) to 400 percent of FPL (California).
District of Columbia, Maine	Require hospitals to provide free care to those below a certain income threshold. Maine requires free care for patients under 150 percent of FPL, while the District of Columbia requires it for those under 200 percent of FPL.
Georgia, Illinois, Maryland, New Jersey, Rhode Island, Washington	Require hospitals to provide free care up to a certain income threshold and then discounted care up to a certain higher income threshold.
Nevada, New York, Oregon, Vermont, Washington	Establish more complicated sliding scales.

Here are the income limits for 200% of poverty, incidentally.

Single Person 2 person household 4 person household

$29,160 $39,400 $60,000

Financial assistance also does not wholly solve medical debt. It can make debts smaller, though, because the underlying charges are reduced.

Still –If you’ve seen one state’s guidelines for financial assistance, you’ve seen one state’s guidelines for financial assistance.

Part Four – Helping patients after they have incurred medical debt

Three states retroactively extend benefits to patients who become eligible for Medicaid, Medicare or charity care after the debt was incurred. In other words, they may pay off recent bills.

Several states require hospitals to provide payment plans. For example, Colorado requires hospitals to provide a payment plan and limit monthly payments to 4 percent of a patient’s monthly gross income and to discharge the debt once the patient has made 36 payments.

New York fully prohibits wage garnishment to recover on medical debt for all patients, yet California only extends this protection for certain low-income populations. While New Hampshire does not prohibit wage garnishment, it requires the creditor to keep going back to court every pay period to garnish wages, which significantly limits creditors.

Illinois prohibits lawsuits against uninsured patients who demonstrate an inability to pay. This helps prevent the ugliness of a wealthy hospital suing a worker (even one of their own workers, which does happen) who is one step from bankruptcy.
New York and Maryland fully prohibit both liens and foreclosures because of medical debt

Note: The North Carolina senate recently passed the “Medical Debt De-Weaponization Act” – though frankly, the new law does not offer more protections than what several states already have. North Carolina has just been that far behind.

Note: There has been an admirable effort by the Biden administration to decrease or eliminate medical debt as a part of lending decisions.

The three largest credit bureaus –TransUnion, Equifax and Experian – are removing cleared medical debts from consumers credit reports beginning July 1, 2022.

This means that if you’ve paid your medical bill in full and the debt is still sitting on your credit report as a negative mark, this negative mark will now be removed.

One large credit bureau – Vantage Score –no longer uses medical debt or medical collection at all in its credit score calculation,

Part Five – Insurance Reforms

The American Hospital Association has proposed the following:

Restricting the sale of high-deductible health plans to only those individuals with the demonstrated means to afford the associated cost-sharing.
Prohibiting the sale of health sharing ministry products and short-term limited duration plans that go longer than 90 days.
Lowering the maximum out-of-pocket cost-sharing limits.
Eliminating the use of deductibles and co-insurance and rely solely on flat co-payments, which are easier for patients to anticipate.
Require that health plans collect directly from their enrollees the cost-sharing payments they impose. This approach would eliminate the vast majority of patient bills from providers altogether.

Part Six – Additional Proposed Reforms

Establish a three-year statute of limitations on consumer debts, including medical debt
Deny hospitals or debt collectors any right to seize bank accounts
If an insurance claim is denied, the patient is not liable to pay the bill. (A similar rule already exists in Medicare.)

Part Seven: A Promising Program – Buying up medical debt and cancelling it

This is already done informally on a small scale by churches, charities, and even cities, through an excellent group called RIP Medical Debt.

However, a liberal think tank called Third Way has a larger proposal, as follows:

Once an individual has certified they have adequate insurance at the silver-tier level, then they will be able to apply for medical debt relief from the government– which would buy up their debt, and then cancel it.

The cost to the government of buying up bad debt should be pennies on the dollar, according to Third Way.

They estimate that the cost of buying all bad debt for one percent of its value would require a provider tax of two-hundredths of one percent. Or, we would need to raise two billion in new taxes, which in federal health spending is a drop in the bucket.

I think their cost estimate is far too low, but there is a lot of room for an increase.

Part Eight: A National Out-of-Pocket Fee Schedule

In 2019, the National Consumer Law Center created a Model Medical Debt Protection Act – in effect, a national fee schedule for hospital charges to the uninsured.

(1) Patients with household income of 0-200% of poverty would pay nothing for hospital care.

Amounts to be paid by patient with incomes of 201-400% FPL	Maximum for patient to pay
50% of the first $1,000	$500
10% of amounts between $1,001-$5,000	$400
5% of amounts between $5,001-$10,0000	$250
Full forgiveness of amounts over $10,000	—-
Maximum amount for patient to pay per bill	$1150

Standing alone, this would greatly relieve the financial suffering of patients.

Ironically it would make some people consider dropping their health insurance. If the worst you would owe is $1,150, why pay $500 a month (or more) for insurance?

A maximum consumer patient of $1,150 would have to be accompanied by high health care taxes. Hospitals could not meet payroll if all patients paid so little.

Summary – Can We Ever Solve Medical Debt?

In the end, there aren’t a whole lot of choices to deal with medical debt:

One can say that “The patient pays what they are billed”…..which is basically what got us into this mess …….

One can say that “Business pays” through an insurance mandate…..again with enormous gaps and leaks……

Or one can say that ultimately “The taxpayer pays when individuals cannot”… and then get about the business of finding sufficient and reliable revenue.