During the COVID-19 pandemic, many of the most financially vulnerable Americans are finding that getting the care they need means opening a Pandora’s box filled with a whole new set of problems. A recent investigative report found that about two dozen hospital systems have sued up to hundreds of their own patients this year over unpaid medical bills. These legal actions are taking place in spite of the $175 billion for providers in federal COVID-19 relief funds, at least some of which is supposed to compensate them for treating uninsured COVID-19 patients. Even before the pandemic, aggressive practices to recover medical debt, including placing liens on patients’ homes and garnishing wages, have stunted the financial vitality of families and even pushed some into poverty.

Medical debt: a symptom of a broken health care system

Unpaid medical bills can either be a product of lack of health insurance coverage or having health insurance coverage that does not adequately protect from financial risk. Given the job losses we have seen during this pandemic, an estimated 3.5 million people will join the ranks of the uninsured. Even those who have comprehensive insurance may still find themselves unable to afford rising deductibles or subject to “surprise” or “balance” bills from out-of-network providers that they may have difficulty paying.

After a patient receives medical care, the provider first assesses the patient’s eligibility for free or discounted care. Federal law requires nonprofit hospitals to have a Financial Assistance Policy. Ten states have requirements that for-profit and nonprofit hospitals provide free and discounted care, five have no minimum requirements, and 35 fall somewhere in the middle. A patient is required to go through an application process in order to be considered for financial assistance. According to Jenifer Bosco, a staff attorney at the National Consumer Law Center, hospital policies and application processes vary widely and there is some evidence that hospitals are not complying with the state standards in place.*

If the patient is deemed ineligible for assistance, the provider bills the patient. In fact, in the wake of a hospitalization, patients may receive multiple bills from multiple providers. These bills can be challenging to decipher, and often the charges bear no resemblance to the actual cost of the item or service. The bill is initially handled by the provider’s internal billing department, but if it goes unpaid, the provider can contract with a collection agency or law firm to collect the debt. The collection agency may sue the patient and if they win, they can ask the court to garnish wages or bank accounts or to place liens on homes or other property. Alternatively, providers can sell debt to a “debt buyer.” Given the opaque billing systems and the complicated tangle of entities involved, according to a report by the Consumer Financial Protection Bureau, consumers face a lot of confusion and uncertainty about “what they owe, to whom, when, or for what.”

Aggressive debt collection hits vulnerable communities the hardest

According to one report, “debt claims [have grown] to dominate state civil court dockets in recent decades.” The people sued rarely have legal representation and over 70% of debt collection lawsuits end in a default judgment, which is when a court rules in favor of the suing party if the defendant fails to respond to the lawsuit against them. Courts frequently require defendants in default judgments to pay court fees and accrued interest, meaning that even small debts can snowball into mammoth financial obligations. These small debt claims hit Black communities particularly hard. One report found that “debt buyer lawsuits were far more numerous in [B]lack communities” and in one of the cities studied, “the rate of judgments was about twice as high among middle-income, mostly [B]lack neighborhoods than among the middle-income, mostly white ones.”

Several news stories have captured the devastation caused by medical debt collections practices, particularly during the pandemic, while shining a light on the less-than-savory practices of some of our marquee health care systems. The personal stories about how people suddenly found that their paychecks were significantly cut down or that a much-awaited stimulus check has been seized by a debt collector are hard to read, particularly in light of the generous federal relief funds that have been given to hospital systems. In one case, a hospital system that received $448 million in federal relief funds during the pandemic is continuing to pursue legal action against patients, asking the court for wage garnishments and liens.

The COVID-19 crisis prompts calls for consumer protections

U.S. Senators Van Hollen and Murphy have introduced a bill that would “suspend all extraordinary collection actions by health care providers for all medical debt (e.g. wage garnishment, bank account seizure)” during the  COVID-19 emergency (defined as between February 1, 2020, and 60 days after the end of the federally declared public health emergency period). The proposed bill would also allow the suspension of existing repayment plans and implement consumer protections such as extensions of deadlines to submit health insurance appeals and a prohibition upon accrual of fees and interest on these debts. The bill would hold health care providers and their agents liable for failure to comply with these protections, but such liability would not apply to collections agencies and debt buyers who buy the debt from the hospital.

A few states have also stepped in to protect patients during the COVID-19 crisis. For example:

• The Governor of Illinois issued an executive order suspending garnishment summons, wage deduction summons, and citations to discover assets on a consumer debtor or consumer garnishee for all consumer debt.
• Governor Jay Inslee of Washington issued a proclamation protecting stimulus checks and state and unemployment payments from bank account garnishments for consumer debt.

Looking forward

While proposals to protect patients during the pandemic are a step in the right direction, aggressive collection of medical debt has been a longstanding problem that will continue to affect people’s lives long after the COVID-19 crisis has ended. Organizations like the National Consumer Law Center are advocating for states to establish guardrails that rein in the worst practices, such as by prohibiting collections during health insurance appeals and limiting interest rates on medical debt. However, to date such legislation in some states has either stalled or failed.

The medical debt crisis has produced some heroes like the Idaho billionaire who set up a fund to defend people from medical debt collectors or the two former collection industry executives who created an organization that buys medical debt and forgives it. But people should not have to rely on the kindness of strangers – or the chance that their situation will be reported by the media – to find a measure of financial security, particularly after facing an illness and receiving much-needed medical care.

* Email from Jenifer Bosco, received August 27, 2020