States tackle America's crippling medical debt with relief programs

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• Medical debt is the number one cause of personal bankruptcy in the U.S.
• 100 million Americans have amassed almost as much medical debt as the size of Greece’s economy
• The financial burden has pushed many patients to skip needed health care, cut grocery budgets, take another mortgage

Cindy Powers was driven into bankruptcy by 19 life-saving abdominal operations. Medical debt started stacking up for Lindsey Vance after she crashed her skateboard and had to get nine stitches in her chin. And for Misty Castaneda, open heart surgery for a disease she'd had since birth saddled her with $200,000 in bills.

These are three of an estimated 100 million Americans who have amassed nearly $200 billion in collective medical debt — almost the size of Greece’s economy — according to the Kaiser Family Foundation.

Now lawmakers in at least a dozen states and the U.S. Congress have pushed legislation to curtail the financial burden that’s pushed many into untenable situations: forgoing needed care for fear of added debt, taking a second mortgage to pay for cancer treatment or slashing grocery budgets to keep up with payments.

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Some of the bills would create medical debt relief programs or protect personal property from collections, while others would lower interest rates, keep medical debt from tanking credit scores or require greater transparency in the costs of care.

In Colorado, House lawmakers approved a measure Wednesday that would lower the maximum interest rate for medical debt to 3%, require greater transparency in costs of treatment and prohibit debt collection during an appeals process.

If it became law, Colorado would join Arizona in having one of the lowest medical debt interest rates in the country. North Carolina lawmakers have also started mulling a 5% interest ceiling.

But there are opponents. Colorado Republican state Sen. Janice Rich said she worried that the proposal could "constrain hospitals’ debt collecting ability and hurt their cash flow."

For patients, medical debt has become a leading cause of personal bankruptcy, with an estimated $88 billion of that debt in collections nationwide, according to the Consumer Financial Protection Bureau. Roughly 530,000 people reported falling into bankruptcy annually due partly to medical bills and time away from work, according to a 2019 study from the American Journal of Public Health.

The gold dome of the Colorado State Capitol is seen on March 23, 2023, in Denver. Lawmakers in states such as Colorado, New York, and Florida have proposed relief measures to protect the millions of Americans crippled in medical debt. (AP Photo/David Zalubowski, File)

Powers’ family ended up owing $250,000 for the 19 life-saving abdominal surgeries. They declared bankruptcy in 2009, then the bank foreclosed on their home.

"Only recently have we begun to pick up the pieces," said James Powers, Cindy’s husband, during his February testimony in favor of Colorado's bill.

In Pennsylvania and Arizona, lawmakers are considering medical debt relief programs that would use state funds to help eradicate debt for residents. A New Jersey proposal would use federal funds from the American Rescue Plan Act to achieve the same end.

Bills in Florida and Massachusetts would protect some personal property — such as a car that is needed for work — from medical debt collections and force providers to be more transparent about costs. Florida’s legislation received unanimous approval in House and Senate committees on its way to votes in both chambers.

In Colorado, New York, New Jersey, Illinois, Massachusetts and the U.S. Congress lawmakers are contemplating bills that would bar medical debt from being included on consumer reports, thereby protecting debtors' credit scores.

Castaneda, who was born with a congenital heart defect, found herself $200,000 in debt when she was 23 and had to have surgery. The debt tanked her credit score and, she said, forced her to rely on her emotionally abusive husband's credit.

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For over a decade Castaneda wanted out of the relationship, but everything they owned was in her husband's name, making it nearly impossible to break away. She finally divorced her husband in 2017.

"I’m trying to play catch-up for the last 20 years," said Castaneda, 45, a hairstylist from Grand Junction on Colorado's Western Slope.

Medical debt isn't a strong indicator of people's credit-worthiness, said Isabel Cruz, policy director at the Colorado Consumer Health Initiative.

While buying a car beyond your means or overspending on vacation can partly be chalked up to poor decision making, medical debt often comes from short, acute-care treatments that are unexpected — leaving patients with hefty bills that exceed their budgets.

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For both Colorado bills — to limit interest rates and remove medical debt from consumer reports — a spokesperson for Democratic Gov. Jared Polis said the governor will "review these policies with a lens towards saving people money on health care."

While neither bill garnered stiff political opposition, a spokesperson for the Colorado Hospital Association said the organization is working with sponsors to amend the interest rate bill "to align the legislation with the multitude of existing protections."

The association did not provide further details.

To Vance, protecting her credit score early could have had a major impact. Vance’s medical debt began at age 19 from the skateboard crash, and then was compounded when she broke her arm soon after. Now 39, she has never been able to qualify for a credit card or car loan. Her in-laws cosigned for her Colorado apartment.

"My credit identity was medical debt," she said, "and that set the tone for my life."