Early Experiences Implementing Medical Debt Protection Laws in Colorado, Illinois, Maryland, and New Mexico

Medical debt affects millions of households in the United States, potentially jeopardizing their health and finances. More than one of seven working-age adults report having past-due medical bills, with most owing at least $1,000. In addition to damaging their credit, medical debt can deter people from seeking care, deplete their savings, and limit their ability to afford food and other items. Federal policymakers are exploring possible solutions, from debt cancellation to a rule that would ban consideration of medical debt in credit applications.

States also have implemented consumer protections against medical debt to address gaps in federal policy. In general, these policies set minimum standards for hospital financial assistance programs (i.e., charity care) and streamline the application process, often mandating free hospital care for certain patients with family incomes below a specific threshold, such as 200 percent of the federal poverty level (about $30,000 for a single adult and about $52,000 for a family of three). States also require hospitals to screen patients for assistance before engaging in certain debt collection practices or ban some practices outright, such as liens and foreclosures on primary residences.

A new Urban Institute brief evaluates comprehensive medical debt policies implemented since 2020 in Colorado, Illinois, Maryland, and New Mexico. To assess how the laws are being implemented and enforced, we interviewed representatives of consumer groups, hospitals, and government agencies in these states. Here, we discuss key lessons for states considering similar medical debt protection policies based on our findings.

State laws can prompt hospitals to modify their billing and collection policies and increase financial assistance to patients.

Federal law requires tax-exempt hospitals to establish written financial assistance policies and make reasonable efforts to determine patients' eligibility for assistance before engaging in "extraordinary collection actions," such as lawsuits that can lead to wage garnishment or seizure of bank account funds. But in practice, the effect of these efforts has been limited. The four study states addressed gaps in these federal rules by setting income-based eligibility criteria for hospital charity care, applying these requirements to all hospitals and some nonhospital providers (e.g., physicians who bill patients independently for services they provide at hospitals), establishing standardized screening and application processes, and limiting extraordinary collection actions.

The stakeholders we interviewed indicated these new rules were reshaping hospital billing and collection practices. Audits in Colorado and Maryland have documented hospitals' adoption of new screening requirements. In New Mexico, stakeholders reported meaningful changes in processes for providing financial assistance at large hospitals and believed the law was limiting aggressive efforts to collect payment from low-income patients.

Policymakers need to consider implementation challenges including lack of patient awareness, difficulty documenting income, and administrative burdens for hospitals.

Still, patients face barriers to accessing hospital financial assistance. Colorado hospitals, for instance, must automatically screen uninsured patients for public coverage and discounted care (unless the patient declines) but must only do the same for insured patients who request to be screened. Difficulty determining patients' income poses another obstacle. Hospitals use various approaches to assess whether patients may qualify for assistance based on income (e.g., patients' self-attestation, technology tools drawing on consumer credit and financial data) and to verify income (e.g., pay stubs, tax returns), but do not always collect this information before or after patients leave their facilities. Hospitals also face administrative challenges in reorganizing billing processes, hiring and training staff, and establishing mechanisms to share screening results with hospital-based providers who bill patients independently.

Administrative oversight and data reporting requirements will be critical for enforcing compliance with new laws.

All four states require hospitals to report patient-level data, such as the number of financial assistance screenings, applications, and denials, and the number of accounts sent to collections. In Maryland, concerns about quality delayed the availability of such data. Identifying a core set of metrics that are reported consistently across hospitals, easy to collect, and that can be publicly reported can help legislators ensure state laws are achieving their goals. These reporting requirements not only play an important role in monitoring hospitals' compliance with state law but can also facilitate efforts to assess trends in medical debt. An increasing share of the nation's medical debt has been removed from credit reports and is no longer visible in credit bureau data.

States have opportunities to make further progress in refining their medical debt protection policies.

Findings from our interviews suggest that states can further streamline application processes for hospital financial assistance and ensure they wrap around health insurance. For instance, they can promote Medicaid hospital presumptive eligibility and real-time eligibility determinations and explore new ways to integrate and match electronic data to help verify income eligibility for financial assistance. They can also ask patients to opt out of financial assistance screenings rather than opting in.

Policymakers must also be aware that the effectiveness of state medical debt laws could be compromised if these laws result in a greater emphasis on prepayment, medical credit cards, or efforts to avoid providing care for patients with low incomes. It will therefore be critical to monitor patients' experiences and hospital practices as the laws are implemented.

Overall, stakeholders were optimistic that new state consumer protections were making a positive impact on the lives of patients who would otherwise be saddled with medical debt. They also underscored the importance of addressing the root cause of medical debt by tackling systemic challenges within the health care system, including lack of universal coverage, underinsurance, and the high cost of care.