How to help 1 million people with medical debt
Whether you have health insurance or not, unexpected medical bills can wreak financial havoc. When those bills go unpaid, it can get even worse.
Like all creditors, health care providers can sue people for unpaid bills or sell the debt to collection agencies. And like other types of unpaid debt, it is likely to show up on your credit report – used by lenders, employers, utilities, and others to gauge your financial reliability.
A unique but common problem
Yet in many ways, medical debt is unique. Unlike taking on a mortgage or student loan, most of us do not willingly go into debt for health-related reasons. The circumstances that lead to medical debt are often things we cannot predict or control, like an emergency surgery, surprise bill, or billing dispute between your hospital and insurance company.
Medical debt is also surprisingly common across demographic and socioeconomic lines. In 2016, it hurt the credit reports of 1 in 4 Tennesseans – the 10th highest rate in America.
While many had thousands of dollars in medical debt, half of those credit histories showed less than $740. Even small amounts can make it harder to get ahead, however, by starting or feeding a cycle of debt and reducing access to jobs, housing, and forms of credit that help people build wealth.
What can policymakers do?
There is no silver bullet for medical debt, but Governor Bill Lee and state lawmakers have a wide range of options to prevent the problem, help people manage it, and mitigate its effects.
To prevent situations that cause medical bills to go unpaid, they’ll need to begin upstream. One way is to curtail surprise bills that result when patients visit in-network or emergency facilities but get treated by out-of-network providers.
Meanwhile, getting more Tennesseans enrolled in health insurance could help them to better afford health care in the first place. Price transparency tools might also help with affordability.
The next challenge is to make it easier for people to manage their medical bills. For starters, new rules and oversight for provider billing and collections could help patients access supports they might already be eligible for – like insurance coverage or hospital-sponsored financial aid and payment plans.
To help Tennesseans help themselves, policymakers can incentivize personal savings and help connect people without bank accounts to traditional financial services instead of costlier alternatives like payday loans. In the same vein, there may be ways to increase access to affordable, small-dollar loans and financial literacy, counseling and coaching services.
Looking downstream, lawmakers
also have ways to mitigate the troubles of people already in medical debt. To improve repayment outcomes and reduce stress for Tennesseans with unpaid bills, they could apply existing rules for debt collectors to health care providers and subsidiaries, limit interest rates, and update rules governing debt collector communications.
Addressing certain aspects of debt collection lawsuits could also reduce the negative financial and legal fallout. For example, many lawsuits go unchallenged and result in default judgments – even if the basis for the suit is inaccurate.
Greater oversight of debt settlement services to prevent fraud may also help. Finally, additional limits on how medical debt affects your credit history could alleviate a significant obstacle to financial security and economic mobility. And if all else fails, the charity approach of paying off people’s debt could provide at least some relief.
What can you do?
The root causes of medical debt are often out of our control, but the solutions are not. Each of the policy options mentioned above can be achieved if we choose to pursue them. While none would fix every aspect of this problem on their own, together they could make a real difference for an estimated 1 million Tennesseans with medical debt.
To learn more about each of these options, read The Sycamore Institute’s full report on our website. You can also register for our upcoming event, Medical Debt in Tennessee: Causes, Effects, and State-based Solutions, on Oct. 29 from 5:30 to 7:30 p.m. at Belmont University.
Laura Berlind is executive director of The Sycamore Institute, a nonpartisan public policy research center for Tennessee.