Medical debt: North Carolina’s novel approach

Medical debt is a significant problem in the U.S., impacting millions, including those with insurance. When hospitals resort to aggressive collection tactics, it can wreak havoc on credit scores and create a cycle of financial hardship for patients already in a vulnerable position.

Some state and local governments are taking action to relieve medical debt by purchasing it directly from providers and collection agencies. This provides immediate help to some, but the impact is transitory. A new effort in North Carolina takes a different approach.

Following the state’s decision to expand Medicaid in 2023, hundreds of thousands of North Carolinians gained access to health coverage and are now much less likely to incur medical debt in the future. But what about those with existing debt living in a state with one of the highest rates in the nation? 

North Carolina’s plan involves the use of funds available through the state-directed payment process. The state controls how these funds are distributed and will require hospitals to both relieve existing medical debt and enact more generous financial assistance policies to help prevent it in the future.

Highlights of North Carolina’s Medical Debt Relief Plan

Here are some of the key requirements of the plan:

1. Forgiving debt: Hospitals must forgive medical debt deemed uncollectible for eligible patients and all debt for current Medicaid enrollees dating back to 2014.
2. Discounts for low-income patients: Sliding-scale discounts ranging from 50% to 100% will be offered to low-income patients who don’t qualify for Medicaid.
3. Capped interest rates: Interest on medical debt will be capped at 3%, preventing it from ballooning into unmanageable sums.
4. No reporting to credit agencies: Hospitals can’t report medical debt to credit agencies, protecting patients’ credit scores.
5. Presumptive eligibility for financial assistance: Hospitals must develop a process to automatically screen patients for charity care without requiring patients to apply for assistance
6. Restrictions on aggressive collection: Hospitals must wait 120 days before sending debt to collections, certain aggressive debt collection actions such as wage garnishments are prohibited.

A step towards accountability

North Carolina’s effort is a “carrot and stick” approach that balances hospital and patient interests to reach a compromise. However, it’s not a small carrot, as hospital systems are likely to gain billions in supplemental state-directed payments for forgiving debt that they could have forgiven for free years ago. And even with this sizable gain for hospitals, it took months of effort from state officials to work with federal agencies and hospitals to reach a workable plan. 

North Carolina’s plan is not perfect, but it’s a compromise that will put a large dent into the state’s medical debt and may help protect millions from debt down the line. For a state with one of the highest medical debt rates in the country, that’s a win.