The passage of the Affordable Health Care Act has generated much debate, particularly because of the law’s provision which requires taxpayers to provide proof of health insurance. While the healthcare law has drawn criticism, there may be an upside for Americans who are struggling under the weight of crushing medical debt. At the direction of Congress, the IRS has proposed new rules that may offer relief to cash-strapped patients who can’t pay their medical bills.
Targeting nonprofit hospitals
The new regulations would apply specifically to those hospitals that operate as a tax-exempt, nonprofit charitable entity. Under the IRS guidelines, this would include government hospitals that have 501(c)(3) status, private nonprofit hospitals with 501(c)(3) status and any hospitals that are operated by a 501(c)(3) organization. Nearly 60% of all U.S. hospitals operate on a nonprofit basis, according to the American Hospital Association.
Under the proposed rules, any hospital seeking tax-exempt status would be required to maintain charity care policies to provide free or reduced cost health care to qualifying patients. Each hospital would also be responsible for ensuring that patients are aware of such policies. Currently, there is no standard for informing patients about charity care services. Many patients may find themselves on the hook for medical bills they can’t afford to pay simply because they’re unaware that they qualify for financial assistance programs.
Relief from unfair collection practices
The IRS is also aiming to put a stop to aggressive and unfair collection efforts, which may only create an additional financial hardship for patients. Specifically, the proposed rules would prevent tax-exempt hospitals from taking so-called “extraordinary collection actions”. The types of actions that would be expressly prohibited include:
- Reporting negative information to any credit reporting bureau
- Filing a civil lawsuit to collect a debt
- Placing a lien against a patient’s personal or real property
- Initiating a foreclosure action against a patient’s real property
- Seizing a patient’s bank accounts or other assets
- Seeking a wage garnishment against a patient
The new regulations would apply to those patients who qualify for charity care or other type of assistance program offered by the hospital. The IRS does, however, allow for an exception to this rule if a patient fails to properly apply for aid. In those cases, the patient would be allowed up to 240 days to submit the required paperwork before collection efforts could begin.
New rules not a substitute for health insurance
For the millions of Americans who don’t have health insurance, the IRS rules could translate to a significant savings in the short-term, however, they don’t eliminate the need for health care coverage. The Affordable Health Care Act mandates that everyone must have health insurance by 2014 in order to avoid a potentially significant tax penalty. It’s estimated that approximately 30 million Americans will become eligible for Medicaid or subsidized private insurance once the law takes effect. In the meantime, patients who can’t afford to pay their hospital bills are urged to explore their financial assistance options, rather than put off seeking medical treatment.
While the proposed rules would provide a substantial benefit to qualifying patients, they have been met with criticism. Specifically, the American Hospital Association has questioned their necessity, arguing that the proposed rules may make it more difficult for hospitals to identify and meet the needs of the communities they serve.
The rules are open to public comment until September 24, 2012. If no additional revisions are necessary, the rules could take effect shortly thereafter. Hospitals that operate on a for-profit basis would not be required to adhere to the new guidelines, however, it’s hoped that they will adopt the measures if passed.