NJ Legislators Offer Plan to Reduce Impact of Medical Debt

Measure would require providers to work out payment plans before turning bills over to collection agencies, better protect disabled patients

seniors paying bills
Two Democratic lawmakers have proposed legislation to protect New Jersey residents from the full impact of medical debt, a major concern for many Americans and a leading cause of bankruptcy in recent years.

Assembly members Eric Houghtaling and Joann Downey (both D-Monmouth) introduced a measure last week in an effort to delay the involvement of collection agencies when it comes to healthcare expenses. Instead, their proposal urges medical providers to work out payment plans with patients first, and better protect disabled individuals with unpaid bills and the families of patients who die before the debt is discharged.

“Medical bills should not consume someone’s life,” Houghtaling said. “It is only fair that patients are provided with feasible methods to pay off their debt.”

While federal and state governments have sought to protect consumers against some
aspects of debt collection when it comes to healthcare bills, medical debt still impacts
millions of Americans annually. According to the Urban Institute, nearly one quarter of the nation’s residents reported owing money to healthcare institutions in 2015; in New Jersey, the number was closer to one in five residents.

While medical providers don’t generally report debt to credit-rating agencies like
Equifax, Experian, and TransUnion, once those unpaid bills are turned over to a
collection agency these charges can eventually make their way onto an individual’s
credit report, according to information posted online by these agencies. As a result,
medical debt collections impact nearly one-fifth of all consumers tracked by credit-reporting systems, the federal Consumer Financial Protection Bureau notes.

Easing the burden on NJ residents

To avoid increasing the debt burden on patients here, New Jersey has made strides to reduce the impact of bills from medical providers that are not part of a patient’s insurance network — an issue that affects some 168,000 residents a year and drives up the cost of insurance by nearly $1 billion annually, according to advocates for reform.

In June, Gov. Phil Murphy signed a measure nearly 10 years in the making to increase disclosure among both insurance companies and providers — so patients are clear on what their plan covers — ensure patients aren’t responsible for costs not covered by insurance plans, and establish an arbitration process to resolve payment disputes between providers and insurers, a mechanism intended to better control costs.

Under the Houghtaling/Downey proposal (A-4335), hospitals and healthcare providers would need to wait at least 90 days, or three months, from when the patient first received the bill before referring any unpaid claims to a collection agency or other organization for legal action.

Making long-term plans

Providers would first be required to offer patients an option of developing a long-term
payment plan based on their income. The patient would need to make “reasonable and
affordable” payments, not exceeding 15 percent of their discretionary income.

If they do so, the provider would be barred from using a collection agency to obtain any
remaining money from this patient. Individuals with a payment plan would need to make
11 out of 12 monthly payments a year to continue with the program, but providers must
first work with them to arrange a strategy for delayed or missed payments.

“This will be a win for concerned patients across New Jersey,” Downey said. “No longer
will residents have to fear paying exorbitant medical bills in an expedited fashion. They
will be able to make payments that make financial sense for them.”

In addition, the provider must cancel any unpaid debt, including any interest, for patients
who become temporarily or permanently disabled, as certified by a healthcare
professional, or die before the debt is paid. If the disability is temporary, the debt is
deferred and no interest will accrue until the patient’s disability status changes. For
this bill, disability is a considered a condition in which the individual is unable to work
and earn money because of their illness or injury.

The measure — now before the Assembly Consumer Affairs Committee, which
has yet to schedule meetings for the fall — would take effect in six months.