How Medical Debt Forgiveness Benefits Hospitals

John Commins, May 15, 2013

A tax expert describes how forgiving medical debts that a healthcare provider will more than likely never collect has an "incredibly low cost, generating very high return" for hospitals.

Working with cash-strapped patients to restructure or forgive their medical debts could provide an excellent return on investment for hospitals that probably aren't going to recover the money anyway, one analyst says.

The biggest hurdle, however, is getting the federal government to agree with the idea, says Brian Haile, senior vice president of Health Care Policy at the Parsippany, NJ-based Jackson Hewitt Tax Service.

Haile says focus groups in Tennessee have that found low-income people with huge medical debts say they would be less likely to pay premiums for health insurance under programs such as the Affordable Care Act as long as they are paying older medical debts.

"If they were close to filing for personal bankruptcies, they already had protections against catastrophic medical events and they knew that," Haile says. "In order to make the insurance have significant value for that household you have to remove the underlying medical debt. Otherwise the family looks at the very real possibility that if someone was hospitalized unexpectedly they would, under [the Emergency Medical Treatment and Active Labor Act] get the care they need and then declare bankruptcy."

Haile says some Tennessee families with huge medical debts were trying to pay off those debts as best they could while still struggling with other pressing issues such as buying food, paying rent, and keeping the lights on.

John Commins

John Commins is a senior editor at HealthLeaders Media.

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