Colorado leads on medical debt protections, even as health care costs remain "out of control"

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 cosigned 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.

Debt removed, credit improves

The trailblazing credit reporting law, House Bill 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."

"Diagnosis: Debt Colorado" is a reporting partnership among KFF Health News, the Colorado News Collaborative, The Colorado Sun, 9News, Colorado Newsline and The Sentinel exploring the scale, impact, and causes of medical debt in Colorado. The ongoing series branches from KFF Health News's award-winning reporting on medical debt in the United States.

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.

200,000 receive financial assistance

Another 2023 law, Senate Bill 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 Senate Bill 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 done in partnership with the Colorado News Collaborative and KFF Health News for the "Diagnosis: Debt Colorado" series, which includes this story.

"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.

Since the 2023 laws went into effect less than a year ago, it is difficult to gauge the impact they have had on patients' ability to manage medical debt costs. It is something experts are keeping tabs on. And medical debt protections are often a Band-Aid for "out of control" health care prices, Kona said.

"To really tamp it down, you'd have to take pretty serious action, such as regulating provider prices, and that stuff is politically really hard to do," she said. "So then people are turning to an idea that if they can't control that, what are ways they can at least protect consumers in another way?"

Still, advocates say the efforts last year are major wins.

"Those bills (last year) were really aimed towards minimizing the impact of medical debt. So it doesn't necessarily prevent the bills that people face, but it is trying to address some of the after effects that add insult to injury from those bills," Fox said.

"That means that they have more financial flexibility and, ultimately, that's going to be important for them for their own financial stability, but also in their ability to potentially even pay those medical bills," he said.

Another crucial point in Colorado's medical debt conversation is the Hospital Discounted Care program. It requires all hospitals to screen uninsured patients for the program and allows patients to apply for financial assistance if they are at or below 250% of the federal poverty level. That is about $75,000 for a family of four.

The program limits a bill amount to the greater of the Medicare or Medicaid rate for the procedure and limits patient payment plans to 6% of their monthly income for three years.

"Prior to hospital discounted care, hospitals were really committed to providing charity care to patients," said Adeline Ewing, a policy analyst at the Colorado Hospital Association. "Every hospital has their internal financial assistance policy. The intent of hospital discounted care was to come in and standardize that, to make sure we have one program that is working across the state."

From September 2022 to June 2023, more than 200,000 Coloradans received financial assistance through the discounted care program, according to an annual report from the Colorado Department of Health Care Policy and Financing.

Uninsured but eligible

This year, lawmakers are trying to update the discounted care program to ease an unintentional administrative burden on hospitals and create some exceptions to the discounted care requirement for rural primary care clinics that already offer a sliding fee scale. It would also clarify that only Colorado residents are eligible.

This year's bill would also make hospitals presumptive eligibility sites for Medicaid. That means a hospital could quickly screen a patient for Medicaid eligibility — such as by comparing their income to the federal poverty level or verifying enrollment in other needs-based programs like the Supplemental Nutrition Assistance Program — and have their immediate care covered before that Medicaid application is formally approved. It would cover the cost of that visit and, if the patient then gets on Medicaid, help prevent medical debt in the future, since the patient would have some level of insurance.

Ewing said that Colorado has six hospitals that currently operate as presumptive eligibility sites for pregnant people and children.

"There's a subset of the population that's uninsured but eligible, and it is a challenge trying to connect with them and get them enrolled in care coverage. And so hospitals as a touch point have a great opportunity to help get those folks," Ewing said.

The bill passed its first Senate committee hearing at the end of February but has not yet been scheduled for floor debate. It is supported by the Colorado Hospital Association, the Colorado Consumer Health Initiative and the Colorado Center on Law and Policy.

Fox said CCHI is keeping a close watch on the bill and any amendments that might erode the protections in the discounted care program.

Policies that put more responsibility on hospitals and institutions to screen patients for benefits can be the most effective ones when it comes to medical debt mitigation, Kona said.

"Any policies that remove the onus from patients to prove things, show things, be informed of things, be knowledgeable about the various paperwork and all the stuff involved — moving that onus from them to larger entities like hospitals, who could have the resources to keep up with the changing laws and requirements, is helpful," she said.

Presumptive eligibility, she said "definitely takes a lot of pressure off of patients in a time when they're already stressed to produce all this documentation."

Not all attempts at medical debt protection have been successful in Colorado. In 2019, a bill to prevent medical debt-related liens on a person's house was killed in committee. That's still an "area of concern," Fox said.

Debt-defying idea in Denver

While Colorado as a state has made progress on limiting the effect of medical debt, two Denver City Council members floated a more direct solution during last year's city budget process: buying people's medical debt outright.

Council members Sarah Parady and Shontel Lewis planned to put forth a plan to work with the nonprofit RIP Medical Debt to spend about $3 million in remaining American Rescue Plan Act dollars to eradicate about $300 million of debt in the hands of private lenders.

RIP Medical Debt, a New York-based nonprofit, reports that it has relieved over $10 billion in medical debt for over 7 million families by buying bundles of delinquent hospital bills.

"Medical debt forgiveness is just like an incredibly powerful economic stimulus tool, and it goes right to the people who need it the most," Parady said, adding that the population of people in medical debt has "a higher proportion of folks with disabilities, Black people, et cetera. In terms of medical debt in collections, those same groups are overrepresented."

Parady and Lewis did not end up presenting a budget amendment for the idea, but they may bring it up again when it is time to allocate ARPA dollars, potentially by the end of this year.

"My colleagues and I are still keeping our eye on the city's obligation of ARPA funds and our plans with all that money. If we get to the point where we're at risk of losing any money and having to give it back to the federal government if it's not under obligation, I think this would be a really exceptional way to make sure that we keep the money in Denver, because it can go under contract very quickly with RIP Medical Debt."

This and similar policy responses to medical debt have the potential to benefit thousands of residents across the state.

At the Capitol last year, Vance testified at both the House and Senate committee hearings for the credit reporting law, lending a voice for Coloradans struggling to come out on top of their medical debt.

"Despite my best efforts to make any sort of payment, it always came down to having to choose between paying down my medical debt and paying necessities like rent and utilities. This was my reality for many years," she told lawmakers, adding that instead of feeling frustrated or angry, she has settled into a sadness over it.

"Medical debt has completely controlled just about every aspect of my life and prevented me from living a life that I deserve to have."