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Medical Debt: How States Are Supporting Consumers

By Jack Pitsor  |  January 26, 2022

Americans face a total of $140 billion in unpaid medical bills, the largest source of debt in the United States. Nearly 1 in 5 people struggle with medical debt—and those with medical debt had an average of $2,400 in collections.

The uninsured are particularly susceptible to unpaid medical bills. A U.S. Census Bureau study found that, in 2017, households without continuous health insurance coverage through the year had a median medical debt of $3,000, whereas fully insured households faced a median of $2,000. Hospitals may also charge uninsured patients their highest prices for services since hospitals and providers often negotiate lower rates with insurers.

Researchers stress, however, that insurance coverage is not necessarily protection against medical debt. A 2020 survey from The Commonwealth Fund showed that most adults who were burdened with medical bills or debt problems were insured when receiving care but faced higher deductibles and out-of-pocket costs for enrollees.

Along with medical debt, consumers may face legal challenges, wage garnishment and other debt collection practices by health providers to obtain payment. A recent Health Affairs study found hospital lawsuits against patients over unpaid medical bills in Wisconsin increased by 37% from 2001 to 2018, disproportionally affecting Black patients and patients in low-income rural areas.

Several hospitals discontinued the practice of filing lawsuits after heightened public awareness—and other providers maintain that they turn to legal action sparingly. They also argue that patients frequently have access to payment plans or financial assistance to pay off their medical bills.

However, concerns surrounding medical debt remain. In response, federal and state policymakers are assessing strategies to prevent patients from receiving costly medical bills in the first place and safeguard those struggling with medical debt.

Protecting Consumers During Billing

Researchers and policymakers often point to surprise billing—when a patient is billed for services after unknowingly seeing an out-of-network provider—as a common source of medical debt for consumers. The federal No Surprises Act, which went into effect this month, prohibits surprise billing from out-of-network providers in emergency and nonemergency settings. Specifically, the law prevents providers from billing patients above what they would pay for in-network services.

Prior to the act, 33 states had laws providing some level of protection for consumers against surprise billing. Thus, federal lawmakers deferred to state laws in several key areas and authorized states to enact protections that go beyond federal law. For example, although over half of emergency ground ambulance rides pose a risk of a surprise bill for the privately insured, the new law currently does not include protections for these services. Ten states apply surprise billing protections to ground ambulances; Texas enacted legislation last year to study the issue.

Outside of surprise billing, states have put in place other safeguards throughout the medical billing process. For instance, Colorado and New Mexico passed legislation in 2021 requiring hospitals to determine whether an uninsured patient qualifies for Medicare, Medicaid or discounted care before sending a bill.

Some states are establishing additional transparency requirements or directly regulating facility fees, which are additional charges to patients to cover overhead costs. Florida, Maryland and Washington recently required that facility fees be disclosed to patients. Connecticut expanded the list of services for which health facilities could not apply a facility fee. Texas prohibited freestanding emergency departments from tacking on fees for drive-thru services such as COVID-19 testing, or charging an “unconscionable price” during a declared state of emergency.

Bolstering Financial Assistance Policies

The Affordable Care Act required nonprofit hospitals to establish financial assistance policies as part of their community benefit activities. However, the law does not specify minimum standards or eligibility criteria. State policymakers are enacting legislation to provide additional opportunities for low-income patients to receive free or discounted care by enhancing these requirements.

According to a 2020 report from the National Consumer Law Center, 10 states require hospitals to provide a full spectrum of free or discounted care for patients meeting certain eligibility criteria, often tied to patient income. Rhode Island, for example, mandates nonprofit hospitals provide free care to uninsured patients with incomes below 200% of the federal poverty level. It also requires they offer discounted care to those with incomes between 200% and 300%.

In 2021, California and Illinois passed legislation ensuring hospitals provide patients with information about free or discounted care options at the point of service, among other changes. Indiana required hospitals to seek community feedback on their uncompensated care, charitable contributions and other assistance programs through annual public forums.

Limiting Medical Debt Collections

Some states have focused on supporting individuals already struggling to pay off their medical bills. At least 13 states and the District of Columbia enacted legislation in 2021 specific to medical debt collections, often limiting various debt collection practices and preventing collections until certain conditions are met.

New Mexico prohibited collection actions—including lawsuits, liens on property and wage garnishments—against patients with incomes below 200% of the federal poverty level. Nevada required collection agencies to send notices to debtors at least 60 days prior to taking any collection action for unpaid medical bills. After passing legislation in 2020 requiring that health facilities take certain steps before pursuing collection actions, Idaho clarified requirements applied to services provided after July 2021.

Whether it’s assessing debt collections or enforcing federal surprise billing protections, states can play a role in assisting consumers faced with medical debt. NCSL will continue tracking major state legislative trends on the topic during the upcoming legislative session and beyond.

Jack Pitsor is a policy associate in NCSL’s Health Program.

This publication is supported by The Commonwealth Fund, a national, private foundation based in New York City that supports independent research on health care issues and makes grants to improve health care practice and policy. The views presented here are those of the author and not necessarily those of The Commonwealth Fund, its directors, officers or staff.

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