Low-income Americans who fall behind on their medical bills will be spared the worst debt collection tactics under new IRS rules that grew out of the health care law
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 constitutional.
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,” says Mark 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.”
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.
The 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 assistance.
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 property.
- Filing civil suits.
- Causing arrests or detainment.
- Garnishing wages.
“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 now
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.”
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.
“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:|
Source: 2010 The Commonwealth Fund biennial health insurance survey
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 time.”
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 now?
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,” 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 coverage now.”
Adds Rukavina: “Hopefully, we won’t have people delaying treatment that need it.”
See related: 15 tips for paying high medical bills