Mired In Medical Debt? Federal Plan Would Update Overdue-Bill Collection Methods

Elham Mirshafiei was at the library cramming for final exams during her senior year at California State University-Long Beach when she grew nauseated and started vomiting. After the 10th episode in an hour, a friend took her to the nearest emergency room. Diagnosis: an intestinal bug and severe dehydration. In a few hours, she was home again, with instructions to eat a bland diet and drink plenty of fluids.

That was in 2010. But the $4,000 bill for the brief emergency department visit at an out-of-network hospital has trailed her ever since. Mirshafiei, 31, has a good job now as a licensed insurance adviser in Palo Alto, Calif. But money is still tight and her priority is paying off her $67,000 student loan debt rather than that old hospital bill.

Once or twice a year she gets a letter from a collection agency. She ignores them, and, so far, the consequences have been manageable. “It’s not like electricity that gets cut off if you don’t pay it,” she said.

Mirshafiei has plenty of company. At least 43 million other Americans have overdue medical bills on their credit reports, a federal Consumer Financial Protection Bureau report on medical debt found in 2014. And 59% of people contacted by a debt collector say the exchange was over medical bills, the most common type of contact stemming from an overdue bill, according to the CFPB.

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This month, the CFPB proposed a rule to frame what debt collectors are allowed to do when pursuing many types of overdue bills, including medical debt.

Federal law already prohibits debt collectors from harassing consumers or contacting them before 8 a.m. or after 9 p.m., among other things. But the law, which was passed in 1977, didn’t anticipate emails and text messages. The CFPB’s proposal clarifies how debt collectors can use these communication tools. And it would allow consumers to opt out of being contacted this way.

The rule also specifies that debt collectors can make no more than seven telephone calls weekly over a specific debt.

But some consumer advocates panned the effort. “This really doesn’t go far enough to protect consumers and make sure that consumers are not abused or harassed or subject to unfair collection practices in debt collection,” said April Kuehnhoff, an attorney at the National Consumer Law Center who specializes in debt collection.

For instance, the center wants a limit of just three telephone attempts each week on a debt. The seven-call limit could be particularly tough on people with medical debt, Kuehnhoff said. They may accumulate bills from several providers for a single medical event — hospital, doctors, a lab and a nursing home, for example — and all could be in collections separately, potentially resulting in dozens of calls each week.

Debt collectors aren’t necessarily in favor of the seven-call cap either, but for different reasons. They say that limiting the number of calls could lead to more litigation or adverse credit reporting rather than working out a payment plan. Overall, the proposed rule seemed to strike a good balance between collection industry and consumer concerns, said Leah Dempsey, vice president and senior counsel for federal affairs at ACA International, a trade group representing 2,500 debt collectors, asset buyers and related professions.

The general consensus is that people should pay their debts. But taking responsibility for medical debt isn’t always as straightforward as paying off a large-screen TV that someone put on a credit card. Did health insurance pay the correct amount? Was the person screened for eligibility for Medicaid, charity care or financial assistance?

“The actual debt collector problem is often about the lack of accountability that providers have for the people that they pass their debt along to,” said Leonardo Cuello, director of health policy at the National Health Law Program.

When a debt collector calls, consumers who are confused about the bill should ask, in writing and generally within 30 days, that the debt be validated. Debts are often bundled and sold multiple times to different collectors, which means errors may be introduced along the way. “There are no magic words; you don’t need to cite the statute,” said Justin J. Lowe, legal director at Health Law Advocates, a nonprofit law firm in Boston that helps people with low incomes who are having trouble accessing or paying for medical care.

At that point, the collection agency has to stop activities until it proves what the consumer owes. The proposed CFPB rule would spell out verification information that must be provided along with instructions for consumers about how to dispute the debt.

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