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January 11, 2022

New State Consumer Protections Against Medical Debt

Author Affiliations
  • 1Boston University School of Law, Boston, Massachusetts
  • 2Community Catalyst, Boston, Massachusetts
  • 3Georgia State University College of Law, Atlanta
JAMA. 2022;327(2):121-122. doi:10.1001/jama.2021.23061

Medical debt represents a substantial financial issue for many US health care consumers, affecting an estimated 19% of households and exceeding all other forms of debt.1 Among those with medical debt, the mean amount owed is $12 430 and the median is $2000.1 Medical debt is more common among historically marginalized communities and in 2017, an estimated 27.9% of households with a Black householder and 21.7% of households with a member of Hispanic origin had outstanding medical bills.1 Oncologists suggested the concept of “financial toxicity” to describe how the cost of medical care can cause financial distress and result in personal bankruptcy.2 The problem of medical debt is not limited to oncology, but rather applies across the medical system, and also impinges health care access, adherence, mental health, and health outcomes.3

Given inadequate protections under federal law, states have stepped in to provide consumer protections against medical debt. A total of 21 states have passed laws that help protect patients from medical debt, including California, Colorado, Connecticut, Illinois, Kansas, Louisiana, Maine, Maryland, Massachusetts, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Ohio, Oregon, Rhode Island, South Carolina, and Washington.4 In 2021, Colorado, Illinois, Maryland, and New Mexico strengthened or newly enacted consumer financial protections in health care. Although these were not the first states to pass these protections, these laws are some of the strongest to date and may serve as a model for other states and federal policy (eTable in the Supplement).4

Hospital bills present the greatest source of unaffordable costs for patients.5 This form of medical debt may be compounded by harsh debt collection practices by some facilities, including denying care due to outstanding debt, sending debt to collection agencies, credit reporting, suing patients, garnishing wages,6 or placing liens on homes and other property.4 Medical bills are an especially important problem for uninsured individuals but also affect those with insurance. In 2020, an estimated 21% of US adults were underinsured,7 potentially exposing these individuals to unaffordable medical bills due to rising cost sharing out of proportion to their incomes and assets and the complexity of medical billing and insurance rules.8

Federal law provides modest protections against medical debt. The Affordable Care Act (ACA) requires tax-exempt nonprofit hospitals to have written financial assistance policies and limit charges and collection actions against patients screened as eligible for financial assistance. But the rules give hospitals complete discretion over patients’ eligibility for financial assistance, are underenforced, and do not apply to the 43% of hospitals that are for-profit or government run.4 When it goes into effect in 2022, the federal No Surprises Act promises to provide protection for out-of-network bills, but still leaves many medical bills subject to collection.

As shown in the eTable in the Supplement, these new state consumer protections recently enacted in Colorado, Illinois, Maryland, and New Mexico build on federal protections in 5 ways: (1) the scope of application beyond nonprofit hospitals, (2) defined limits on charges, (3) stricter regulation of medical debt collection, (4) enforcement, and (5) data reporting by clinicians and health care organizations to monitor compliance and effects on patients, particularly among historically marginalized populations. Each provision deserves attention as a potential template for other states and the federal government to follow, but some notable gaps remain.

First, in terms of scope, the new states laws go further than the federal requirements and apply to all hospitals, not just nonprofit organizations, and their debt collectors. In addition, New Mexico and Colorado extend their requirements to urgent care clinics, freestanding emergency departments, and hospital outpatient departments.

Second, a key protection of these laws aims to limit the creation of medical debt. They do so by requiring facilities to screen patients for available coverage and evaluate patients’ ability to pay, offer payment plans, and limit the amounts charged based on patient income. For instance, Colorado defines patients as eligible for financial assistance if their incomes are less than 250% of the federal poverty limit (FPL), restricts hospitals’ collections from these patients to a percentage of their income, and ceases collections on medical debts as fully paid after 36 months of payments. Maryland requires hospitals to provide free care to patients whose incomes are less than 200% of the FPL and to offer income-based repayment plans. Illinois provides free care for all uninsured patients with incomes less than 200% of the FPL and a sliding scale of discounted care for uninsured patients earning between 200% and 600% of the FPL.

These state laws address a weakness of the federal rules by establishing clear income thresholds for financial assistance eligibility. Yet even insured, middle-class households may have difficulty affording their medical bills from a catastrophic or expensive chronic condition. Accordingly, states and the federal government should consider further increasing the income thresholds to extend protections for all US residents whose medical bills are out of proportion to their ability to pay.

Third, these laws also impose stronger protections than federal rules against medical debt collection actions through stricter gatekeeping prior to the initiation of collection and by curtailing egregious practices. New Mexico bars any collection actions against patients with low incomes who earn less than 200% of the FPL. Illinois prohibits hospitals from reporting unpaid bills to a credit agency for 180 days to allow patients to apply for financial assistance or resolve coverage issues before damaging their credit. Illinois also bars hospitals from foreclosing on homes or seeking a patient-debtor’s arrest. Colorado prohibits health care organizations from sending bills to collection before screening patients for assistance or offering a fair payment plan and requires cessation of collection actions for patients found eligible for public coverage or discounted care. Maryland requires hospitals to refund payments to patients who were pursued for collection and should have received free care and bans wage garnishment or placing liens on a patient’s home to recover medical debts. State and federal policy makers should consider a ban on including medical collections on credit reports, placing liens on a primary residence, taking legal actions that would lead to arrest of anyone with outstanding medical bills, and prohibit wage garnishment while a person is making good faith efforts to pay their debts.4

Fourth, as with the federal rules, these state laws are nothing without enforcement. Typically, the state attorney general or health department enforces these consumer protections, investigates consumer complaints, imposes penalties, and publicly reports violations. Colorado has a stronger model of enforcement, which also provides aggrieved patients the right to sue hospitals, either individually or in class actions, for violations of the law. Such a private right of action may be necessary if administrative enforcement is lacking or to remedy flagrant violations.

Fifth, these new laws address a critical data gap by requiring annual, public reporting on medical debt collection actions. Maryland and Colorado go further by requiring health care entities to detail collection actions by race and ethnicity and other demographic characteristics. These data are necessary to understand the inequitable degree of medical debt collection on historically marginalized communities (such as Black or Hispanic individuals), monitor hospitals’ compliance, and ultimately assess the effectiveness of laws at providing protection from medical debt. State and federal policy makers should consider including similar reporting for all medical practitioners and health care organizations to fill a significant gap in data regarding the extent to which they pursue collection actions that exacerbate financial distress.

There is much to commend these states’ laws. They offer important consumer protections to patients who have limited financial resources and target hospitals’ most egregious debt collection practices. In turn, these protections could help advance racial and ethnic equity, because Black and Hispanic populations are at greater risk of incurring medical debt and legal judgments from collections due to lower levels of insurance or wealth to pay these bills.1,9

Although hospitals may maintain that they need to maximize revenues to maintain services, the financial distress that patients subjected to medical debt lawsuits experience far outweighs the significance of the revenue for hospitals. Analysis from Maryland found that debt lawsuits amounted to less than 0.2% of hospitals’ operating revenues.10 As an even smaller percentage of this debt would actually be recovered, these new reforms could protect millions of US residents from the collateral consequences of debt, without threatening the sustainability of providing health care to them.

These new state laws go a long way to filling the gaps left by federal law to protect patients from medical debt and should be followed by other states and, more importantly, the federal government. Stronger national protections would promote equity because medical debt most heavily affects people from historically marginalized racial and ethnic groups and those in states that have declined to expand Medicaid. Laws protecting vulnerable patients from medical debt are important but incomplete. These laws are no substitute for expanding Medicaid in all states and enacting comprehensive health reform to pay for health care while reducing substantial out-of-pocket exposures for all. Consumer financial protection in health care should not depend on where a person lives, and no one should have to go bankrupt from their medical bills.

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Article Information

Corresponding Author: Erin C. Fuse Brown, JD, MPH, Georgia State University College of Law, 85 Park Pl NE, Ste 223, Atlanta, GA 30303 (efusebrown@gsu.edu).

Conflict of Interest Disclosures: Dr Robertson, Mr Rukavina, and Dr Fuse Brown all reported receiving support from the University of Arizona James E. Rogers College of Law as part of a research program on medical debt policy funded by the Pew Charitable Trusts. Community Catalyst receives support from the Robert Wood Johnson Foundation to work on issues related to medical debt.

References
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Bennett  N, Eggleston  J, Mykyta  L, Sullivan  B. Who had medical debt in the United States? US Census Bureau. Published April 7, 2021. Accessed October 9, 2021. https://www.census.gov/library/stories/2021/04/who-had-medical-debt-in-united-states.html
2.
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Yabroff  KR, Zhao  J, Han  X, Zheng  Z.  Prevalence and correlates of medical financial hardship in the USA.   J Gen Intern Med. 2019;34(8):1494-1502. PubMedGoogle ScholarCrossref
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Fuse Brown  E. How to solve the medical debt crisis. The Appeal. January 12, 2021. Accessed September 24, 2021. https://theappeal.org/the-lab/policy/how-to-solve-the-medical-debt-crisis/
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Perry  AM, Crear-Perry  J, Romer  C, Adjeiwaa-Manu  N. The racial implications of medical debt: how moving toward universal health care and other reforms can address them. Brookings. October 5, 2021. Accessed October 6, 2021. https://www.brookings.edu/research/the-racial-implications-of-medical-debt-how-moving-toward-universal-health-care-and-other-reforms-can-address-them/
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Preying on patients: Maryland’s not-for-profit hospitals and medical debt lawsuits. National Nurses United. February 2020. Accessed October 8, 2021. http://www.nationalnursesunited.org/sites/default/files/nnu/documents/0220_JHH_PreyingOnPatients_Report-opt.pdf
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