How Obamacare Keeps Debt Collectors Out of Hospitals

When the New York Times recently published an article about debt collectors going after patients waiting to be seen in the emergency room, even I was shocked. I do this work day in, day out and have seen more headlines than I care to remember about unaffordable medical care, the damage it can do to one’s credit, and the efforts of state and federal officials to reign it all in.

Thirty million Americans were contacted by collection agencies for medical bills in 2010. According to Federal Reserve Bulletin studies, more than half of all collection accounts on credit reports are medical accounts. And the damage inflicted by a single medical collection can result in the drop of more than 100 points on a credit score. Even worse, aggressive collection action is frequently imposed on those who are actually eligible for financial assistance. Some, including federal lawmakers, believe heavy-handed collection practices have gone too far. In fact, the Affordable Care Act (ACA), or Obamacare as it is often called, includes new provisions that prohibit “extraordinary collection actions” in order for hospitals to keep their federal tax exemption.

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The ACA is the most significant federal healthcare law since Medicare and Medicaid were enacted in 1965. Like it or not, it is dramatically changing the landscape of American healthcare and insurance coverage. The U.S. Supreme Court heard arguments in March and is expected to rule on the constitutionality of the law by early summer. What exactly is at stake here?

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The ACA is intended to provide insurance coverage to millions of Americans currently without health insurance. The law’s most controversial provision is the individual mandate, a requirement that most people carry health insurance coverage or pay a penalty beginning in 2014. Another significant provision is the dramatic expansion of Medicaid to all non-elderly individuals under age 65 with incomes up to 133 percent of the federal poverty level (i.e. $14,856 for an individual, $30,657 for a family of four). Insurance exchanges and tax credits are intended to make insurance more affordable for income eligible individuals and families, as well as small businesses. Other reforms improve the quality of care while holding down costs.

Given the breadth of these provisions, it is no wonder that the new requirements governing financial assistance and billing and collection are not well-known. Interestingly, these little known provisions of the ACA, if properly implemented, stand to make the headlines noted above a rarity.

The ACA directs the IRS to establish Section 501 ( r ) of the Internal Revenue Code to implement new community benefit rules for hospitals that are subsidized through the federal tax exemption. These new rules are currently in effect and require that hospitals do the following:

1. Establish written financial assistance policies describing who is eligible for free or reduced cost care and publicize them to patients and the community.

2. Refrain from extraordinary collections actions against patients before screening them to determine whether they qualify for financial assistance.

3. Limit fees charged to patients eligible for financial assistance to rates paid by Medicare or the lowest amounts paid by insured patients.

4. Conduct a regular community health needs assessment and implement a plan to address selected needs.

While the IRS has not yet clearly defined what constitutes extraordinary collection actions, there is little doubt that dunning patients in the emergency room is an unacceptable practice. It is also likely that the IRS would have misgivings about any hospital that sues a patient deemed eligible for financial assistance.

These new protections are straightforward yet many people are unaware of them. Even some hospitals may not understand the new rules. The Ohio hospital that sued the patient for an $1,800 hospital bill, in spite of the patient being eligible for financial assistance, refused initial requests to provide its financial assistance policy to a news reporter. In violation of federal law, it claimed that its policy was proprietary. Only after the reporter provided the hospital with the language from the federal law explaining that the financial assistance policy is to be widely publicized did the hospital provide it.

The new Section 501 ( r ) provisions are meaningful. Congress intended to protect low and moderate income Americans from crushing medical bills if they got sick. These protections will help millions of people avoid having medical bills on their credit reports. The task now is getting out the word so that patients treated in non-profit hospitals get the assistance they are entitled to under a hospital’s financial assistance policy.

If you believe you are the subject of aggressive billing and collection practices after receiving treatment at a non-profit hospital, contact the billing department and ask for information on their financial assistance and billing and collection policies. It is your right.

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Image: Martin Howard, via Flickr

This story is an Op/Ed contribution to Credit.com and does not represent the views of the company or its affiliates.