IRS to tax-exempt hospitals: Go easier on medical debt collection
New guidelines will help low-income families avoid huge medical bills
A little-noticed provision of the health care reform law could help millions of people avoid staggering medical bills, liens on their homes and debt collection calls.
In passing the Affordable Care Act (ACA), Congress directed the Internal Revenue Service to
draft rules to flesh out a portion of law, spelling out the consumer protections for those receiving charitable care at nonprofit hospitals. The agency
complied, issuing its detailed proposal a few days before last week's
favorable U.S. Supreme Court ruling affirmed the bulk of the law as
The proposed rules, issued June 22 by the IRS, would apply to the nearly six in 10 U.S. hospitals that operate as tax-exempt, nonprofit charitable hospitals. They would be required to provide additional consumer protections and services to patients who qualify for charity care and medical financial aid. If finalized, the rules would bar the hospitals from using the most aggressive debt collection tactics against low-income patients who don't pay their medical bills.
'Really important provisions'
"These are really important provisions,"
Rukavina, executive director of The Access Project, a Massachusetts-based
program that helps consumers with massive medical debt negotiate with hospitals
to lower their bills or work out affordable payment plans.
"For a lot of these medical bills they create a range
of problems, obviously debts and bills that people are struggling to pay,"
Rukavina says. "But then they end up reporting to a credit reporting
agency or end up on a credit report ... That ends up upping the price that people
pay on credit cards and mortgages because they lower their score."
Under the proposed rules, hospitals that seek tax-exempt status from the IRS must have charity care policies
for free or reduced medical care and publicize those rules to patients. Currently,
patients admitted for care may not be informed that charity or free care
services may be available to them and there is no uniform policy for how
hospitals relate that information.
"Often times, people know little or nothing about these
policies. You have to ask," Rukavina says. "For some people, they
might get full free care and for others it might be based on a sliding scale
based on income."
For a lot of these medical bills they create a range
of problems, obviously debts and bills that people are struggling to pay.
|-- Mark Rukavina
The Access Project
The American Hospital Association, the national group representing all types of hospitals, disagrees that the new rules are needed. "America's hospitals strive to be responsive to the patients and communities they serve and many have developed innovate ways to make patients aware of financial assistance available to them," an association representative said in an e-mailed statement. "The IRS proposed rules could discourage hospitals' innovations and best practices, because they are overly prescriptive. The AHA will work to improve the proposed rules to preserve hospitals'" ability to address the unique needs of their communities.
public has until Sept. 24, 2012, to comment on the proposed rules, which could take effect
shortly after that if the IRS makes no further revisions.
The Government Accountability Office describes nonprofit hospitals as those that provide medical care to the poor, promote community health care, conduct medical research, are exempt from paying local, state and federal taxes and provide no portion of net earnings to any individual.
More than half -- 57.5 percent -- of all U.S. hospitals are nonprofit, according to the hospital association.
For-profit and government hospitals will not be subject to the new IRS rules.
Rukavina says he
hopes they will follow
the IRS guidelines voluntarily.
'Extraordinary' collection acts banned
The proposed rules will also offer relief from aggressive debt
collection and negative credit reports for some. They bar charitable hospitals from taking
"extraordinary collection actions" on patients receiving financial
Prohibited acts under the IRS proposed guidelines include:
Reporting negative information about the patient
to the credit reporting agencies.
Placing liens on a patient's property.
Foreclosing on real property.
Seizing bank accounts or other personal
Filing civil suits.
Causing arrests or detainment.
"For the people who qualify for financial assistance,
hospitals are prohibited from pursuing
extraordinary collection action,"
Rukavina says. The IRS offers only a temporary reprieve if patients fail to
file the required paperwork with the hospital. In those cases, they can still be subject to debt
collection. There could be up a 240-day reprieve before collection efforts
could begin for those patients.
Ask for adjustments
Crushing medical bills are one of the leading causes of
bankruptcy filings. Consumer advocates hope health care reform will make the number of medical bill related bankruptcies fall.
Rukavina recommends people who have existing medical bills with nonprofits to
consider asking for adjustments. "They should ask the hospital for information on their
financial assistance or charity care programs and apply -- even
retroactively," Rukavina says. "Oftentimes, they will be granted
retroactive coverage and those bills will be forgiven."
"Once the act is fully implemented, you would
absolutely hope to see the number of bankruptcies resulting from medical debt
dropping," Rukavina says.
BY THE NUMBERS:
Of the nearly 187 million people ages 19 to 64:
- 8 percent had medical bills of $10,000 or more that are
being paid off over time.
- 4 percent have medical bills of $4,000-$8,000.
- 13 percent have medical bills totaling $4,000 to $8,000.
- 29 percent had a problem paying or were unable to pay their
Source: 2010 The Commonwealth Fund biennial health
No free ride
Although the health reform measures could mean significant savings on health
care costs for some families and coverage for millions who don't currently have
insurance, they are not free. By 2014,
everyone must have health insurance or pay an annual fee based on income if
they aren't insured. The fee can be waived if you can't find a plan that costs
less than 8 percent of your annual income or if your income doesn't meet the
federal tax filing threshold. Families will still have to pay the cost of
premiums and office and prescription drug co-pays.
Rukavina acknowledged that some families will struggle to
make the required health insurance premium payments or penalties -- even with the
tax credits and reduced premium payouts for low- and moderate-income families.
Some may even resort to putting those payments on credit cards if they don't
have the cash.
"There will be out-of-pocket costs associated with
health care, but we should see fewer people incurring large debt because of
it," he says. "That's not to say that there won't be some people who
-- even with lower out-of-pocket costs -- won't feel pain. People will still
struggle. Hopefully, it will be more feasible for them to pay those costs over
Some of the ACA's provisions -- such as a ban on denying coverage to
children with pre-existing conditions and allowing children up to age 26 to
remain on their parents' health plans -- have already taken effect. But the bulk
of them, including the individual mandate that everyone have health insurance
coverage or pay a penalty fee, kick in by 2014. About 30 million uninsured Americans are expected to gain medical coverage under the law.
"About 90 percent of people who are currently uninsured
will be eligible for subsidized private health insurance or Medicaid,"
says Sara Collins,vice president, affordable health insurance for the Commonwealth Fund, a private health research foundation. "You will have a central place where you can go to find out
whether you are eligible for either Medicaid or the premium subsidies."
What should you do
What should consumers with health care concerns do now? Some provisions of
the ACA are already in effect and can be beneficial to many people.
What's important to do right now is make sure that you are aware of all the coverage options that you have.
The Commonwealth Fund
"What's important to do right now is make sure that you
are aware of all the coverage options that you have," Collins says. If you are under age 26 and uninsured, "You might be able to come under your parents' plan."
People with diabetes, heart disease and many other
conditions who've been denied health care coverage should seek out plans that
are now available to them.
"If you don't have health insurance or haven't had
health insurance for six months, and you have pre-existing conditions, you might
want to look into the pre-existing condition health plans that are available now
in all 50 states," Collins advises. "There's no premium subsidy, but
for a lot of people it's impossible to get coverage on the market."
Leading up to 2014, some consumers may be tempted to hold
off on taking care of nonessential health care needs until they can get full
coverage. Neither Rukavina nor Collins advise anyone to ignore health needs.
"It's important to get care when you need it,"
Collins says. "Things will change dramatically in 18 months ... but it's
still important for people to investigate what their possible options are for
Adds Rukavina: "Hopefully, we won't have people
delaying treatment that need it."
See related: 15 tips for paying high medical bills
Published: July 2, 2012
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!