State Lawmakers Move to Limit Wage Garnishment for Medical Debt

Legislators in eight states are advancing new measures to restrict wage garnishment for unpaid medical bills. The proposed legislation, which has been introduced in states including Colorado, Florida, Hawaii, Indiana, Maine, Michigan, Ohio, and Washington, aims to address the growing burden of medical debt on families. This movement follows a retreat from federal debt protections under the Trump administration and the rising costs of healthcare, which have led to an increase in uninsured individuals and those opting for high-deductible insurance plans.

On February 19, Colorado State Representative Javier Mabrey introduced legislation designed to prohibit wage garnishment for medical debt. Mabrey highlighted the severe financial consequences faced by individuals who fall ill, stating, “In the wealthiest country on Earth, people are going bankrupt, suffering wage garnishment, just because they get sick.” A recent investigation by KFF Health News revealed that courts in Colorado approve approximately 14,000 wage garnishment requests each year due to medical debt. The findings indicated that this issue extends beyond urban hospitals, impacting smaller rural hospitals, physician groups, and public ambulance services as well.

Wage garnishment allows creditors to recover funds from individuals with outstanding debts, often directly from their paychecks. In most states, creditors can also garnish bank accounts or place liens on homes. To initiate wage garnishment, a creditor typically must obtain court permission, which can create additional stress for debtors. As Lauren Jones, legal and policy director for the National Center for Access to Justice, explained, “The creditor is taking the money directly out of somebody’s paycheck, and so it doesn’t leave people with any choice to say, ‘I need to prioritize food for my children.’”

According to the Commonwealth Fund, a New York-based nonprofit focused on healthcare, wage garnishment for medical debt is permissible in almost all states. The current legislative efforts seek to either ban this practice outright or limit it by establishing income thresholds that protect low-wage earners from garnishment. These initiatives are part of a broader movement to address the negative impact of medical debt, which includes measures to prevent medical debt from appearing on credit reports and prohibiting liens on homes.

Debt collection agencies have opposed these legislative changes, asserting that they fail to address the underlying issue of healthcare affordability and could jeopardize the ability of medical providers to deliver care. Scott Purcell, chief executive of ACA International, an association of credit and collection professionals, stated, “The wage garnishment process is already highly regulated at the federal and state level and includes many consumer protection measures.”

As the proposed legislation is debated, concerns have been raised regarding its potential impact on healthcare providers, particularly in rural areas. BC Services, a collection agency, warned clients that the Colorado bill poses an existential threat to rural health providers. Bridget Frazier, spokesperson for the Colorado Hospital Association, remarked that the legislation could escalate costs and financial risks for healthcare providers, complicating their ability to sustain operations and serve patients effectively.

The Colorado proposal aims to ban wage garnishment entirely for medical debt and also seeks to limit bank garnishments. Among its provisions, the bill would prevent payment plans from exceeding 4% of a debtor’s weekly net income and require creditors to verify whether uninsured patients qualify for public health insurance before pursuing collections. Additionally, it would bar the collection of debts older than three years and impose penalties on medical providers for non-compliance.

Dana Kennedy, co-executive director at the Denver-based Center for Health Progress, expressed support for the legislation, emphasizing that access to healthcare should not lead to financial ruin. She noted that many individuals affected by wage garnishment work in low-wage jobs, thus amplifying the urgency of reform.

The complexities of identifying medical debt, particularly when it is intertwined with other types of debt, pose a challenge for effective enforcement. Carolyn Carter, a senior attorney with the National Consumer Law Center, pointed out that simplifying the process is essential for ensuring that protections are accessible to all individuals facing medical debt.

While some lawmakers advocate for a complete ban on wage garnishment, others, like Washington state Senator Marko Liias, propose intermediate measures. Liias is spearheading legislation to exempt a larger portion of low-wage earnings from garnishment, allowing individuals with low incomes to retain a greater share of their earnings.

As discussions progress, healthcare providers and debt collectors continue to voice concerns about the implications of such reforms. The Washington State Hospital Association has expressed neutrality regarding the proposed changes, while the American Hospital Association refrains from taking positions on state policies.

Ultimately, the legislative landscape surrounding wage garnishment and medical debt remains fluid. As states grapple with these challenges, the outcomes of these proposals will likely have significant repercussions for both patients and healthcare providers across the nation.