The President has signed a budget reconciliation bill that will lead to 10 million people losing health insurance. At the same time, recent studies estimate that as many as 100 million Americans owe about $220 billion in medical debt — that is, unpaid medical and dental bills stemming from inadequate coverage. The new law, combined with expiring enhanced premium tax credits (PTCs) and other recent federal policy changes, will exacerbate this medical debt crisis.
These federal changes create challenges for both patients and providers. Patients face the loss of affordable health insurance and a greater risk of medical debt, while providers must contend with more than $1 trillion in lost revenue from public coverage programs. This leaves state policymakers concerned about protecting patients from medical debt amid potential hospital closures and reductions in service. But even so, states have tools to protect patients from medical debt while mitigating the burdens on local providers.
Federal policy changes will result in more coverage loss and underinsurance
The primary contributors to the expected loss of coverage are: 1) provisions in the new law targeting Medicaid and the marketplaces, causing 10 million people to become uninsured; 2) the expiration of the enhanced PTCs at the end of 2025, causing 4.2 million people to become uninsured; and 3) new federal marketplace rules estimated to cause up to 1.8 million people to become uninsured. These recent federal actions disproportionately affect lawfully present immigrants, eliminating their access to affordable marketplace insurance.
Additional policy changes will also expose those who remain insured to higher out-of-pocket costs. For example:
- Medicaid enrollees with incomes above the federal poverty level will face new copayments as high as $35 per service.
- marketplace enrollees will see a significant increase in net premiums if the enhanced subsidies expire. This would likely drive many to switch to less-generous plans. For example, the average silver plan has an already-high annual deductible of $4,902. If enrollees switch to bronze plans, their deductibles will rise to $7,481.
- low-income Medicare enrollees will see costs rise because the new lawblocks rules that made it easier for enrollees to participate in Medicare Savings Programs that help with premiums and cost sharing.
- families with employer-sponsored insurance could face an increase in out-of-pocket health care costs of up to $900 per year (or $450 per year for an individual), thanks to a change in the formula that calculates annual maximum out-of-pocket costs.
While states cannot reverse impending coverage and affordability losses, they can help patients with medical bills the patients are unable to pay. Traditionally, states have required hospitals to maintain financial assistance or charity care programs that provide discounts on medical bills to low-income families. But with hospitals under new financial pressure, policymakers may wish to prioritize approaches that protect patients while mitigating burdens on providers.
States with minimum financial assistance standards can strengthen protections while simplifying administration for hospitals
States that already impose minimum financial assistance standards can centralize and simplify eligibility screening processes to ensure timely, equitable assistance for patients while easing administrative burdens for hospitals by:
- creating a centralized eligibility gateway: States can create a unified, real-time digital gateway linked to existing public benefit databases (e.g., SNAP, TANF, unemployment records), allowing hospitals to quickly confirm presumptive eligibility.
- establishing a state-run financial assistance portal: States could develop a secure, centralized portal that enables patients to authenticate their identities and prepopulate key financial information on applications. States also can ensure applications don’t require submission of unnecessary data that could have a chilling effect on immigrant populations.
- providing financial assistance navigation services: States can contract with vendors to help patients complete financial assistance applications.
States can curb harmful medical debt collection and financing practices by third-party actors amid coverage losses
Medical bills often pass through the hands of multiple middlemen. Many hospitals use revenue cycle management companies to manage their billing and financial assistance processes. In addition, they assign or sell medical debt to debt collection agencies and partner with medical financing firms to offer medical credit cards and other products with steep interest rates to patients. These outside entities can increase patients’ financial exposure by charging excessive interest rates or pursuing aggressive collection practices.
States could step in to protect patients from some of the more harmful practices by:
- requiring debt collectors to offer income-based payment plans: Nine states require hospitals to offer patients payment plans and cap the monthly payment amount. States could require debt collectors to do the same — index monthly payment amounts to income and limit interest rates.
- prohibiting providers from offering certain medical financing products: States could prohibit providers from offering or facilitating deferred-interest medical financing, which can increase the amount some patients owe by approximately 23 percent.
States also could require revenue cycle management companies to be licensed, disclose operational practices, and charge flat fees rather than contingency-based payments tied to how much patient revenue they collect.
Looking Forward
Recent federal policy changes have created significant gaps in the health care safety net. States, on their own, will not have the resources to fix them. However, the policies described here can help mitigate financial risks for patients as well as operational and administrative burdens for hospitals. By centralizing financial assistance processes and regulating harmful practices by intermediaries, states have options to protect patients from falling into medical debt traps while also supporting health care infrastructure.
