The Growing Medical Consumer Debt Industry

28 Dec The Growing Medical Consumer Debt Industry

The lead article in the December 3, 2007, Business Week entitled Fresh Pain for the Uninsured describes a growing trend in which finance companies team up with medical providers to steer uninsured and underinsured patients into credit-card style repayment plans as part of the admissions process.

The hospital or other health care provider gets paid up front, and the patient is left with a repayment contract carrying high interest rates and fees. Patients accustomed to being able to work out repayment agreements with local nonprofit hospitals and clinics find themselves saddled with repayment schedules that cannot be met and spiraling out of control interest.

In what Business Week termed a lucrative new form of fiscal alchemy, GE, Citi, and smaller rivals are aggressively marketing their services to nonprofit hospitals serving underinsured patients. For these hospitals, the problem of uncollectible medical debts is very real. The return on overdue medical bills sent to collections is on the order of 10%.

The advantage to a hospital of entering into an agreement with a finance company offering to provide cash up front is obvious. Unfortunately, it puts the medical provider in the position of credit salesman. In one of the cases cited in the article, a hospital was effectively requiring enrollment in a particular credit plan as a condition of treatment. This violated their nonprofit charter, and they were forced to revise their policies.

Is there more here than meets the eye? On the face of it, a medical credit contract with a nonprofit hospital with a historic 10% collection rate does not look like a viable investment. The typical debtor here is submedian income, has few or no assets, and has suffered a serious illness. He or she is a prime candidate for Chapter 7 bankruptcy. Given the risk involved, credit-card level interest and fees don’t add up to a comfortable profit margin.

Are lenders anticipating some change in the laws which would treat medical debts differently from other consumer debt? Certainly, arguments could be made that such laws are needed. Bills incurred by insolvent underinsured and uninsured patients are a drain on the health care system and could be said to threaten the availability of services. Insurance industry pundits will tell you that going without health insurance or opting for less than full coverage is a choice for which people deserve to be penalized.

There have been various proposals for instituting some sort of national health insurance program. It is not hard to envision nondischargeability provisions on uninsured medical debt being slipped into a bill authorizing a voluntary national health insurance plan.

As we have seen with student loans, and especially the section in BAPCPA relating to private student loans, such provisions end up being retroactive. People are being dunned for decades-old bills. Were something of this nature to occur with old medical debt, the results would be even more appalling. Consumer bankruptcy attorneys would do well to monitor the situation for lender sleight-of hand.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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