Health care debt is the leading cause of bankruptcy in the United States. More than 2 in 5 American adults have some sort of debt.
In many cases, the money people owe to health care providers forces them to cut back on food or utilities, forgo other health care or take on even more debt. Medical debt can keep you from buying a home, paying for college or saving for retirement.
To solve this problem, Connecticut, New Jersey and a growing list of counties and cities are using public money to buy and forgive millions of dollars of their residents’ medical debt. Earlier this month, Gov. Josh Shapiro unveiled a budget proposal that would allocate $4 million to buy and pay off the debt of low-income Pennsylvanians. A disproportionately vast number of the state’s 1 million residents who owe money to health care providers live in rural areas, according to Shapiro.
“Coupled with higher prices in the stores, this debt is an anchor holding these families and communities back,” Shapiro told lawmakers during his budget address, noting that a relatively petite state investment could make a huge difference because hospitals would sell the debt for pennies.
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Such programs “can really change lives,” said Gabriela Elizondo-Craig, a project manager at Innovation for Justice, a research program at the University of Arizona and the University of Utah. Her research has focused on state policies that affect medical debt.
“They didn’t choose the disease, [and] “They did not choose to incur expenses that could have such a devastating impact on their lives,” she said.
Americans owe at least $195 billion in unpaid health care bills, according to an analysis of 2022 U.S. Census Bureau data by KFF, a health policy research organization. Black people, residents of Southern states — many of which have not expanded Medicaid — and people with chronic conditions or low incomes are most likely to be behind on payments to health care providers. Nearly a quarter households with children have unpaid health care bills, compared with 17% of those without children.
Berneta Haynes, a senior staff attorney at the National Consumer Law Center, noted that even people with health insurance can run into medical debt when they can’t afford to pay deductibles or co-pays or when they get care outside their insurer’s network of providers. About half of adults with medical debt say they owe less than $2,500according to KFF.
Unlike other types of consumer debt, people rarely plan on taking on medical debt. one-time or short-term expense such as a hospital stay causes about two-thirds of all medical debt, according to the Consumer Financial Protection Bureau. Even people who might want to compare prices to find the best health care are thwarted by unclear prices, restrictive insurance networks, too few providers or a lack of options in emergencies.
“Medical debt is a systemic problem that is something that government is supposed to do and is expected to do,” said Allison Sesso, president and CEO of RIP Medical Debt, a national nonprofit that takes money from donors and uses it to buy medical debt from vendors and collection agencies at a significant discount and then forgives it. The organization is a popular partner for state and local governments looking to cancel medical debt.
“This is an area that is ripe for public engagement and publicly funded solutions,” Sesso said, “because the fact is that medical debt is not an individual choice. It is the result of a broken system.”
A 2022 YouGov poll found that two thirds of Americans support government relief for health care debt, which makes it more popular than relief for other types of debt, including student loans.
In May, New Orleans allocated $1.3 million from the federal American Rescue Plan Act to establish a medical debt relief program in partnership with RIP Medical Debt.
New Orleans will provide $1.3 million to buy back and forgive an estimated $130 million in debt for residents with incomes below 400% of the federal poverty level (about $124,000 for a family of four) and for those whose health care debt is at least 5% of household income.
Jeanie Donovan, deputy director of the New Orleans Health Department, said the fresh employ of one-time funds to fight the pandemic was justified. More than 1 in 5 adults in Louisiana have medical debt, among the highest rates in the country. City officials have figured that wiping out medical debt could aid as many as 80,000 New Orleanians.
“Lack of access to health care can be costly and deadly,” said Donovan, who noted that New Orleans took action after hearing about a similar incident. effort in Cook County, Illinoisincluding Chicago. “We also know that there are issues with inequality, that across the country, Black and Brown people are more affected by medical debt and more likely to owe money for care, and that’s particularly problematic in the South.”
New Orleans residents do not need to sign up for the program. Those who qualify will receive letters in the mail informing them of their debt repayment.
This is an area that is ripe for public engagement and publicly funded solutions because the fact is that medical debt is not an individual choice. It is the result of a broken system.
– Allison Sesso, President and CEO, RIP Medical Debt
Last month, New York City entered into a similar partnership with RIP Medical Debt, following in the footsteps of cities and counties in Michigan AND Ohio. New York City plans to allocate $18 million for wipe out the city’s $2 billion in health care debt, AND Pittsburgh has committed $1 million The 2023 budget includes a medical debt relief program.
Connecticut, New Jersey and Pennsylvania are also looking to partner with RIP Medical Debt. In Connecticut, Gov. Ned Lamont, a Democrat, announced this month that the state would employ $6.5 million in federal pandemic aid to erase as much as $1 billion in medical debt from residents.
In response, the leader of the Republican Party in the Connecticut House of Representatives, Rep. Vincent Candelora shared on social media fears that medical debt relief could distract from other budget issues and disappoint those who do not qualify for debt relief.
New Jersey’s current budget allocates $10 million to cancel medical debt in partnership with RIP Medical Debt. Last month, New Jersey Gov. Phil Murphy, a Democrat, urged lawmakers to augment that amount for the coming year.
Like New Orleans and Cook County, many localities have used federal pandemic relief money to pay for their programs. Sesso said that with that money running out, the question remains whether local and state officials will find other funds to pay off residents’ medical debts.
“This is not a constant solution to medical debt. This is something [state and local governments] can do today,” Sesso said. “But they should be thinking about broader solutions that they can support” and start conversations with stakeholders about how to address medical debt.
Consumer protections at the state level for medical debt are uneven. Elizondo-Craig studied this issue for Medical Debt Policy Scorecarda research project of the University of Arizona and the University of Utah.
Medical debt relief, she said, “really is a stop-gap solution because the root cause of the problem is that a portion of the population is uninsured or underinsured, and providers can essentially charge different payers whatever they want at different amounts.”
“Across all healthcare services, prices are simply too high for people to afford, and we need price transparency to make informed healthcare decisions,” she said.
Democrats have pushed for action to wipe out the debt. But in some places, other measures to relieve medical debt have been bipartisan.
North Carolina State Treasurer Dale Folwell, Republican, he was an advocate of the bill last year in North Carolina they called Medical Debt De-Funding Act that would limit the interest allowed on medical debt, require transparency in medical billing and add additional protections for consumers. The bipartisan bill stalled in committee, but its primary sponsors were Republicans.
Illinois AND Oregon passed legislation last year that requires hospitals to take a more lively role in reducing medical debt by screening patients to determine if they qualify for financial assistance. And in August, Colorado became the first state in the nation to pass a law that prohibits the disclosure of medical debt information included in consumer credit reports. Its basic Sponsors there were two Democrats and one Republican.
Haynes of the National Consumer Law Center said she and her colleagues have seen much greater interest in medical debt relief at the state level. She anticipated upcoming state efforts to remove medical debt from credit reports and augment eligibility for financial aid.
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Other changes could include a ban on aggressive medical debt collection methods, such as wage garnishments or bank account liens; greater price transparency; and requirements that health care providers notify people who may qualify for charity care or debt relief.
However, Elizondo-Craig stressed that universal health insurance “would be the most effective solution.”
Expanding Medicaid under the Affordable Care Act would significantly reduce medical debt in the 10 states that have not yet done so, she said. People living in states that have not expanded Medicaid are 40% more likely to be in debt for healthcare than people living in states that have seen expansion, according to a 2022 study.
Elizondo-Craig said expanding Medicaid not only extends coverage to more people, but also gives the government more ability to negotiate prices with health care providers, “so medical bills aren’t as high in the first place.”
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