Photo: Colorado state Sen. Lisa Cutter, second from right, speaks about a bill that would cap the medical debt interest rate and establish other consumer protections related to medical debt on February 14, 2023. Colorado Attorney General Phil Weiser stands at far right. (Sara Wilson/Colorado Newsline)
This story by Sara Wilson appeared on Colorado Newsline on March 11, 2024. We are sharing it in two parts.
Lindsey Vance carried medical debt for nearly half her life.
The 41-year-old Denver resident said her debt began stacking up when she was around 19, when she stopped being covered under her parents’ health insurance and turned to the emergency room for health care related to injuries and illnesses.
“If I made enough money at the time, I would have, of course, paid my bills. I couldn’t afford to go see a doctor, and I certainly couldn’t afford to pay the medical bills when they came,” she said. “So I was in a situation for a long time where I was accruing medical debt but not able to pay it off.”
That debt prevented her from having a car, apartment or credit card in her name for most of her adult life, because it appeared on her credit report and worked against her loan application. The family’s cars are in her husband’s name, and her in-laws co-signed on their Colorado apartment. She is now both insured and in a better situation financially and was able to get her very first credit card a few months ago.
“But my credit has been absolutely terrible my entire adult life because of the medical debt,” she said.
A recently-enacted law aims to help the estimated 700,000 Coloradans like Vance with medical debt by removing it from consumer credit reports. The law is one of several policies Colorado lawmakers have advanced in recent years to lessen the burden of medical debt. Another recent law caps the allowable interest on the debt to 3% and aims to ensure transparency with consumers. In conjunction with the state’s Hospital Discounted Care program, created in 2021 for uninsured and low-income patients, and other debt-related laws, experts say that Colorado is a leader among states when it comes to medical debt protection policies.
“Colorado is definitely at the forefront, especially with the recently enacted legislation,” said Maanasa Kona, an assistant research professor at Georgetown University’s Center on Health Insurance Reforms and author of a Commonwealth Fund report comparing states’ medical debt policies.
“It is some of the more ambitious actions we’ve seen states take,” she said.
Nationwide, about 100 million people have some form of health care debt, according to research by KFF Health News. The crisis is forcing millions of Americans to ration medical care, take on extra work and cut back on food, clothing and other essentials. Around Denver, medical debt is also exacerbating the city’s problem with housing affordability.
At the same time, a growing number of states are exploring ways to help patients, including Arizona, Oregon, New Mexico, New York and Maryland.
The trailblazing credit reporting law, House Bill 23-1126, was one of two medical debt bills passed during Colorado’s 2023 legislative session. It requires credit reporting agencies to remove the debt from consumer reports, limiting who can see it.
Julia Char Gilbert, a former policy advocate at the Colorado Center on Law and Policy who worked on the legislation, said the law helps mitigate harm for the estimated 700,000 Coloradans who have medical debt in collections — debt accrued from accidents or illnesses that launch patients into a pricey health care system.
About 11% of Coloradans have medical debt in collections with a median of $693, according to data from the Urban Institute. Nationally, 13% of people have medical debt in collections.
“If you went to apply for a new apartment, apply for certain jobs, apply for a loan or mortgage — even setting up a cell phone plan or setting up utilities at your new apartment — all of those are junctures that are really important for living an economically stable and thriving life, and situations where medical debt showing up on your credit report could mean the difference between housing stability and housing instability,” she said. “These are ways that people are being harmed in a cascading way throughout their lives.”
The credit report protection expires in July 2028. There is an exception if a person is trying to get a loan for more than the Federal Housing Finance Agency’s conforming loan limit for a one-unit property, which is $766,550 this year.
An Urban Institute analysis found that many consumers saw their credit score improve as medical debt gets removed. Those researchers found that after the credit-scoring company Vantage stopped including medical debt in collections in its score calculations, its average score for affected consumers increased from 585 to 615 points.
Colorado was the first state to enact such a law, followed by New York. The federal Consumer Financial Protection Bureau is developing new regulations that would bar credit reporting for medical debt nationally.
Removing medical debt from credit scores does not mean that patients no longer owe the money, and Coloradans with unpaid bills can still be targeted in other ways, including collection lawsuits by hospitals and other medical providers.
The new credit reporting law also will not impact other forms of medical debt, including medical bills that patients may have put on their credit cards, loans taken out by patients or bills that patients are paying off over time through payment plans set up through their providers.
Another 2023 law, Senate Bill 23-93, caps interest on medical debt at 3% per year, reducing it from 8%. The law also allows consumers to request documentation from a creditor or debt collector to ensure that the debt is accurate and stops debt collections if the consumer is in an appeals process.
“It’s hard to say what the impact will be, but I know from hearing testimony and seeing people talk about it, I’m really optimistic that it will make a change,” Sen. Lisa Cutter, a Littleton Democrat who ran the bill, said.
Colorado joins seven other states that limit interest.
“You really shouldn’t be paying an interest that is unreasonable for medical bills that, in many cases, you didn’t have control over,” said Adam Fox, the deputy director of the Colorado Consumer Health Initiative.
A provision in SB-93 that would have required the original creditor to be named as a plaintiff in debt collection proceedings was stripped during its first committee hearing. Thousands of Colorado patients from UCHealth are sued every year, with a third-party debt collector instead of the hospital often named as the plaintiff in the lawsuit, according to a 9News/Colorado Sun investigation.
“That’s a huge piece that we’d like to tackle at some point,” Cutter said. “Transparency is the baseline. Nobody should argue about being transparent in how they deal with their debt and their consumers.”
She said that the plaintiff transparency issue could come up again in the Legislature, though she didn’t know when.
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