New bill seeks to relieve the ‘medically distressed’ of debt obligations

Aug 6, 2014 | Healthcare Industry News

Medical debt has become an issue of national concern, with more than one in four families carrying debt from medical care. Not only does that affect the financial wellbeing of millions of Americans, it represents a drag on the entire economy, as families forgo making major purchases because of their medical debt obligations. 

In response, Senator Sheldon Whitehouse of Rhode Island introduced the Medical Bankruptcy Fairness Act to to provide bankruptcy protection for "medically distressed debtors." The bill defines medically distressed debtors as people who have spent at least $10,000 on medical bills, or currently face an equal amount in medical debt. If passed, medically distressed debtors would be allowed to discharge their debts, including student loans, which previously would have required convincing a bankruptcy judge  that they cannot afford to pay. 

Northeastern University law professor Daniel Austin told The Wall Street Journal that the bill could potentially help hundreds of thousands of Americans. According to Austin, more than half of the people who file for bankruptcy with medical debt also have student loans. 

Student loan debts have become notorious for being difficult to shed, while medical debt is much easier by comparison to have written off during bankruptcy. Any debt for those suffering from a debilitating medical condition can be a significant burden. A member of Senator Whitehouse's office told Bankruptcy Beat that "there's no good reason to treat these [student] loans differently from other debt in bankruptcy."

Today's medical facilities health insurance claims management departments currently write off millions of dollars per year to bad debt. This is largely because out-of-pocket heath care costs have inflated 600 percent between 2003-2013, with the average wage rising only 31 percent.  This bill could potentially aid both care facilities and patient efforts to reduce debt, but more attention is needed to address the rising cost of care.