Known as Prop 209, this measure would reduce the maximum interest rate allowable on medical debt from 10% to 3% and expand the assets exempt from medical debt collectors.
If it passes, it may prompt other states to move in this direction, especially those more progressive states or those states with significant populations in medical debt.
It isn’t a secret that medical care is expensive, and many out-of-pocket costs under health plans have increased. This, in turn, has led to individuals incurring medical debts. The KFF Health Care Debt Survey finds that 41% of adults currently have some debt caused by medical or dental bills, many of which were one-time, unexpected costs. Another survey found most households’ savings are less than the maximum out-of-pocket limit allowed for most private plans.
Unsurprisingly, those in debt may be reluctant to accrue more debt. Medical debt is no different and can make consumers reluctant to seek care. While this may decrease expenses in the short term, this may lead to increased expenses (for both health plans and individuals) in the long term.
Net, if someone puts off care today because they don’t want to go further into debt, they may ultimately need even more care at a later date.
FEDERAL EFFORTS TO LESSON MEDICAL DEBT BURDENS
Earlier this year, an executive order focused on medical debt reform was announced. This order seeks to hold medical debt collectors accountable for harmful practices and complying with debt collection rules, limit the impact of medical debt on credit scores, and help veterans with medical debt get their debts forgiven.
STATES CAN ALSO PLAY A SIGNIFICANT ROLE
As Arizona has shown, there is still quite a bit that states can do to help limit the burden of medical debt. In particular, states control the amount of interest that can be charged on medical and other debt.
If the Arizona measure passes, it’s likely to be replicated in other states where progressives have successfully introduced ballot measures to accomplish what conservative legislators would not, such as expanding Medicaid, raising the minimum wage, and establishing paid sick leave.
According to the Fairness Project, which supports passing progressive policies through the referendum process, states such as Arkansas, Missouri, and Oklahoma have expressed an interest in launching their own medical debt campaigns.
Democratic state lawmakers have also enacted legislation in recent years to address healthcare costs through public health insurance options, healthcare cost commissions, and medical debt reform. Last year, California, Colorado, Illinois, Maryland, Nevada, and New Mexico passed bills addressing medical debt.
THE IMPLICATIONS IN ARIZONA
According to an analysis by the Urban Institute, an estimated 875,000 Arizonans, roughly 12 percent of the state, have medical bills in collections.
If Proposition 209 passes, creditors will not be allowed to charge more than 3 percent interest on medical debt, a significant reduction from the current 10 percent rate. The measure will also decrease the portion of weekly disposable income subject to debt collection from 25 percent to 10 percent while increasing the value of a home protected from creditors to $400,000 from the current value of $250,000.
Opponents, who primarily represent creditors, argue the proposal is too broad. They claim the provisions shielding assets could apply to all forms of debt, beyond medical debt, and predict that a move like this will devastate the state’s lending market.
THE IMPACT ON EMPLOYER GROUP HEALTH PLANS
It is hard to tell if these reform efforts will ultimately impact employer group plans. While I previously touched on the possibility of those in debt delaying medical care, thus leading to higher cost claimants down the road, I hypothesize that the impact on group health plans will be limited.
Lowering interest rates will allow some individuals to pay off their debts quicker, but many with higher debts will still struggle, even with lower interest rates. If providers are making significant amounts from the interest they are currently charging (and allowed to charge), they may seek to increase their rates if this income source is lost or reduced. This will take time, however, and the impact is likely limited for providers other than large hospital systems who may be holding many millions in unpaid medical debt.
With the election now less than one week away, we will know soon enough if the Arizona measure passes. We will also finally get a break from all the political ads cluttering our airwaves!
If you would like to discuss Prop 209 further or wish to speak to us regarding your employer sponsored group medical plan, please don't hesitate to reach out.