What Governments Are Doing to End Medical Debt

There are 6 million car crashes every year—imagine you’ve been in one of them. You’re rushed to the hospital and undergo surgery. You have health and auto insurance but still get a hospital bill for thousands of dollars. Problem is, you can’t pay it—you’re living paycheck to paycheck. So you ignore it because there’s nothing else you can do.

Months later, you find out the hospital is suing you.

A judge decides to garnish your wages, taking 25% out of your paycheck to pay the hospital, but you’re already living paycheck to paycheck. How are you going to survive on just 75% of your original income? Now you have to pick up a second job. All because somebody hit you with their car.

This is a reality people with medical debt often face.

More than half of US adults have accrued medical debt in the last five years, and it’s a major equity issue, affecting people of color at much higher rates. In the past five years, 69% of Black adults and 64% of Hispanic adults had medical debt due to a number of factors, including lower insurance coverage rates, lower incomes, and higher rates of chronic illness. Medical debt can have a range of consequences—cutting back on food and basics, dipping into your savings accounts, garnishing your wages, losing your home, and declaring bankruptcy. And it creates a negative feedback loop that just further exacerbates inequities in our health care system. People with medical debt are likely to be denied care or not seek out care in the future, making their health even worse and their future costs even higher.

Medical debt is a pervasive issue that requires big solutions. We have called for federal policy that would end medical debt forever and prevent it from happening again. In the meantime, local, state, and federal efforts have attacked the issue from all directions, from enacting consumer protections to paying off residents’ debt. We spotlight a few successful efforts below.

Local Efforts

On the local level, several counties and cities have taken action to help residents struggling with medical debt.

Cook County, Illinois and Toledo, Ohio are trailblazers on this issue. They both partnered with RIP Medical Debt, a charity that buys medical debt at one cent on the dollar and then forgives it, to provide relief to hundreds of thousands of their residents. Their programs are targeted to help those most hurt by medical debt—residents are only eligible if they’re low-income or have debt that is 5% or more of their income.

Cook County, home to Chicago and numerous suburbs, used $12 million of its American Rescue Plan Act (ARPA) funds to forgive up to $1 billion in medical debt, and hundreds of thousands of residents are expected to get debt relief over the next three years. Toledo, along with the help of Lucas County, used $1.6 million of its ARPA funds to forgive up to $240 million in medical debt. They’ve inspired other counties and cities across the country to explore ways to lessen the burden of medical debt, including more partnerships with RIP Medical Debt.

State Efforts

Several states have passed legislation to strengthen consumer protections for those with medical debt. But one state took a different approach—a citizen-initiated ballot measure.

Arizona Proposition 209, also known as the Predatory Debt Collection Act, addresses some of the crueler debt collection practices. It reduces the maximum interest rate on debt from 10% to 3% annually. It lowers the percentage of wages that could be garnished by creditors from 25% to 10% and allows courts to intervene in cases of extreme economic hardship. The measure also improved protections for assets like homes, vehicles, and bank accounts against collection or forced sale, and it passed with support from a whopping 75% of voters. National polling also shows a high level of support for medical debt relief. Americans do not have to be convinced that you shouldn’t lose your home or your wages because you have medical debt.

Federal Efforts

The Biden Administration led by Vice President Kamala Harris has taken several steps to reduce the burden of medical debt. The Administration is investigating hospitals receiving federal assistance for uncompensated medical care that still pursue patients aggressively for unpaid bills. They have also reduced the impact of medical debt on consumers’ access to credit.

Efforts in Congress haven’t crossed the finish line, but several bills were introduced by Democrats last Congress:

• H.R.773/S.214, Medical Debt Relief Act was introduced by Senator Jeff Merkley (D-OR) and Representative Katie Porter (CA-45). It would prohibit a consumer reporting agency from including medical debt information in a consumer credit report if the debt was fully paid or is less than a year old.
• S.5150, Strengthening Consumer Protections and Medical Debt Transparency Act was introduced by Senator Chris Murphy (D-CT). It would improve consumer protections, cap the annual interest rate for medical debt, and increase transparency. The bill would require the Department of Health and Human Services (HHS) to create a public database to collect information from health care entities on their debt collection practices.
• S.146, Medical Bankruptcy Fairness Act was introduced by Senator Sheldon Whitehouse (D-RI). It would provide families with a greater chance of keeping their homes in cases of bankruptcy in states that have weak debtor protections.
• H.R.2547, Comprehensive Debt Collection Improvement Act was introduced by Representative Maxine Waters (CA-43) and passed in the House last Congress. While the bill is not specifically focused on medical debt, it included a provision that would prohibit consumer reporting agencies from adding information related to debt from a “medically necessary procedure” to consumer credit reports.

All the medical debt legislation introduced in Congress has been focused on consumer protections. Numerous bills were also introduced to lower health care costs, which could help prevent future debt. And while these are necessary, they don’t get to the meat of the problem: the medical debt. Third Way released a proposal to end it for good.

Our idea would wipe out medical debt for hundreds of millions while ensuring they have adequate health insurance to prevent future debt. To have medical debt forgiven, an individual must have adequate insurance coverage through the marketplace exchange, their employer, Medicare, or Medicaid. Affordable, adequate coverage is key to ensuring that medical debt doesn’t continue harming millions of Americans in the same way it has for decades. Once an individual has adequate insurance, they’ll be able to apply for medical debt relief from the government. The federal government will then buy the debt at one penny on the dollar, the current going rate, and pay for it by increasing existing state provider taxes by 0.02%. It’s a win-win-win. Americans get their medical debt forgiven. Providers see less uncompensated care. And it’s good governance.

Efforts at the local, state, and federal levels are important first steps in reducing the inequitable burden of medical debt. But there is much more to be done.