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States Using Tax Dollars to Pay Off Consumer Medical Debt

Pile of envelopes with overdue utility bills isolated on white

Seventeen states have acted to reduce or eliminate the burden on consumers of rising medical debt, according to an opinion article in Governing.

The average medical debt owed by households was $18,660 in 2021, says David Kendall of Third Way, a center-left think tank. “Unfortunately, having health insurance is no guarantee of financial protection,” wrote Kendall. “Two-thirds of adults under 65 with health coverage have problems paying off medical bills or medical debt.”

In response, states are partnering with third-party debt collectors to help pay off the unpaid medical bills. Michigan is one of the latest states to jump on board. The state appropriated $4.5 million in its current budget to pay off about $450 million in consumer medical debt for 180,000 Michigan residents. Michigan is one of several states working with RIP Medical Debt, a non-profit debt collection agency.

Other actions by states include capping the amount hospitals can collect from low-income patients or giving homestead exemptions for liens from medical debt.

‘Medical Debts Being Erased’

“These are the kind of public-private ‘feel good’ initiatives that are easy to praise, but deep down, they don’t do much more than provide good public relations for hospitals and local governments,” said Devon Herrick, Ph.D., a health care economist who is a policy advisor to The Heartland Institute, which publishes Health Care News.

“The medical debts being erased most likely have already been deemed uncollectible by the hospitals,” said Herrick. “At that point, the local government likely pays less than one percent of the face value to erase the debt. It is better to work out a deal with the hospitals to erase the debt than for hospitals to sell the debt to private debt collectors who harass the debtors for years to come.”

Phil Kerpen, president of American Commitment, agrees. “These programs are buying bad debts that will never be paid and for pennies on the dollar,” said Kerpen. “The hospitals get some money when they would otherwise get nothing, and the debtors get to avoid stress and potential bankruptcy. The only losers are the taxpayers who are forced to pay.”

Subsidizes High Prices

The debt relief initiatives are another symptom of a dysfunctional health care system, says Michael Cannon, director of health policy studies at the Cato Institute. “Medical-debt relief is merely government subsidizing high medical prices,” said Cannon. “It is yet another way that government, having intervened in countless ways to increase medical prices, then subsidizes the resulting harm rather than dealing with the root cause.”

Cannon and Herrick both say rising medical debt is an opportunity to reform medical care.

“If state and federal governments continue to block cost-reducing innovations and to subsidize high prices, health care will continue to grow more unaffordable,” said Cannon.

“I could imagine an alternative scenario where it cost taxpayers nothing,” said Herrick. “If hospitals were more eager to work with patients, patients themselves might be able to pay their debts if they were given a similar deal.”

AnneMarie Schieber (amschieber@heartland.org) is the managing editor of Health Care News.

 

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