How to Avoid Wage Garnishment If You Can't Pay Your Medical Bills

Earlier in December, the Consumer Financial Protection Bureau issued a report that found 43 million American consumers have medical collections on their credit reports.

Then, a report from ProPublica and National Public Radio focused on the collection practices of nonprofit hospitals. It found that some nonprofit hospitals use collection actions that go far beyond just reporting to the credit bureaus. The actions include going to court and getting wage garnishments.

The report found the use of garnishments by nonprofit hospitals to be widespread in five states, one of them being Missouri. The Missouri hospital that sued more patients than any other nonprofit hospital in the state also owned a for-profit debt collection agency.

The agency filed thousands of lawsuits against the hospital’s patients. Many were reported to be uninsured and have low incomes. If the agency won a judgment, the hospital allowed for interest to be tacked on and to go forward with the garnishment of wages. This happened with thousands of patients.

The Intended Role of Nonprofit Hospitals

The Affordable Care Act put new requirements on nonprofit charitable hospitals in order for them to maintain their federal tax exemption. These requirements include having transparent financial assistance, billing and collection policies, as well as limiting the prices charged to patients who are eligible for financial assistance. They also prohibit hospitals from pursuing extraordinary collection actions before making a reasonable effort to determine whether a patient is eligible for financial assistance.

While hospitals are left to determine the eligibility and assistance details of their policies, they are also required to widely publicize their policies in the communities that they serve. However, it was reported that many of the Missouri hospital’s patients were not informed of the financial assistance policy, and did not benefit from a reduced price. At this particular hospital, once a patient is sent to collection and their account incurs legal fees (which they do if a judgment is granted), they are no longer eligible for financial assistance. It is not surprising then that thousands of people had wages seized through garnishments that often took a big bite out of a paycheck.

Were reasonable efforts made to determine eligibility? That’s the big question yet to be answered. The IRS has yet to issue final regulations to clearly define reasonable efforts. However, the prudent layperson may think it reasonable to have signs posted and make brochures or summaries of the policy available throughout the hospital. Furthermore, many may question whether suing patients and using wage garnishment is charitable, especially if information on financial assistance is not made readily available.

How to Avoid Legal Actions for Medical Bills

If you are a patient of a nonprofit hospital – with or without insurance – be sure to ask for information on their financial assistance or charity care policy. Don’t rule out your own eligibility, apply for assistance. Communicate with the hospital and work with them to resolve your outstanding bill.

Other healthcare providers, though not necessarily required, also have financial assistance policies. Chances are, if you don’t ask, you won’t receive. And in some instances, if you don’t pay up, you may be called into court. Your future earnings could be at risk and your credit could be ruined.

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