A Little-Known Hospital Program Can Help Prevent Medical Debt. Here’s How It Works.

If you carry medical debt, there’s a good chance a hospital is the creditor.

One way to avoid that burden is through hospital financial assistance, often called charity care. Most hospitals in the United States provide free or reduced-cost care to patients with very high medical bills or low incomes.

Still, getting help can be difficult. Surveys show many patients do not realize hospitals offer financial aid, and others are stopped by complicated application forms.

Hospitals often require applicants to provide bank statements, pay stubs, tax returns, divorce records, or other documents, and many must submit paperwork in person, by mail, or by fax.

“They don’t make it easy,” said Neale Mahoney, a Stanford University economist who studies medical debt.

Those obstacles leave many patients facing bills they never should have had to pay. In one year, hospitals and health systems billed patients for at least $2 billion that they likely did not owe, according to one analysis.

As healthcare costs rise and more people lose coverage, states and hospitals are experimenting with a newer fix: automatically checking whether patients qualify for help and erasing debt when they do. This is known as “presumptive eligibility.”

With this approach, a patient’s care may be covered before any bill arrives — though not always. Hospitals differ in when they use auto-enrollment, how they use it, and who is included, which can affect patients’ finances.

Here’s a look at how auto-enrollment works.

What is hospital financial assistance?

In many states, hospitals decide their own standards for granting financial aid. Eligibility is usually based on the income of the patient’s entire household. The closer a household is to poverty, the less the patient owes. People with moderate incomes and insurance may also qualify for discounts, especially when medical bills would consume a large share of their earnings.

At least 11 states require hospitals to eliminate bills for low-income patients, although the income limits differ. Georgia, for instance, requires free care for anyone with income slightly above the federal poverty threshold. In several states, including Oregon, North Carolina, and Maryland, patients can earn twice that amount and still receive free care.

In most states, however, patients must apply to receive assistance.

Several states have recently opened investigations and passed laws aimed at making it easier to get help. Even so, research on medical debt suggests major gaps remain.

How many hospitals use auto-enrollment?

Nearly all nonprofit hospitals say they automatically screen certain patients and reduce bills for those who qualify.

Under the Affordable Care Act, nonprofit hospitals must make reasonable efforts to identify eligible patients before they sue them, send debts to collections, or report them to credit agencies. Presumptive eligibility is one way hospitals can meet that requirement, which took effect in 2016.

In the first year under the rule, about 70% of tax-exempt hospitals nationwide said they screened patients and proactively lowered bills, according to an analysis of federal data by the independent research institute RTI International for Tradeoffs. By 2022, that share had risen to nearly 90%.

The federal rule does not cover for-profit and public hospitals, and they are not required to report what steps they take before pursuing unpaid bills.

In six states, lawmakers require hospitals to use presumptive eligibility and bypass applications for certain patients: California, Delaware, Illinois, Maryland, North Carolina, and Oregon.

Who is eligible to be automatically enrolled in financial assistance?

In most states, hospitals decide which patients can skip the application process.

Common groups that are automatically screened include people who are homeless, deceased, or already enrolled in state or federal programs that assist low-income households with housing, food, or prescriptions. Some hospitals use more unusual criteria. Christus Health, for example, writes off bills for anyone in a religious order who has taken a vow of poverty.

Eligibility standards are often buried in policy documents and can be hard to find or understand. Some hospitals disclose very little about whom they proactively screen. Thirteen hospitals owned by Ascension, one of the country’s largest Catholic health systems, say only that they may screen patients “with a sufficient unpaid balance.”

Among the six states that require presumptive eligibility, the rules vary. Maryland, for instance, requires hospitals to erase bills only for patients who already receive government help for food or utilities but are not eligible for Medicaid. In Illinois, lawmakers set less demanding rules for rural hospitals than for urban ones.

In Oregon, hospitals had to screen anyone who owed more than $500, along with every patient on Medicaid or without insurance. Public data from the first 26 hospitals to report showed that in one recent year, about 80% of Oregon patients who received bill help never filled out an application. The state legislature later increased the screening threshold so that hospitals must include patients who owe at least $1,500 for a single visit.

Without an application, how do hospitals figure out who gets help?

Hospitals have several ways to identify patients who may qualify for financial assistance.

They often use public records, information patients have already shared, or consumer credit tools to estimate who is eligible for reduced bills.

For instance, if a hospital sees that a patient lives in a high-poverty ZIP code or has no address on file, that may be enough to determine eligibility. Many hospitals also pay companies to run employment and credit checks to see whether patients qualify for free care.

Hospitals may also weigh how likely someone is to pay a bill, regardless of income. This is known as “propensity to pay.” California and Oregon ban that practice, worrying that hospitals could target patients who reliably pay their bills even when they qualify for assistance.

When do hospitals screen patients for financial aid?

It varies.

Illinois, North Carolina, and Oregon require hospitals to screen certain patients before sending any bills. California hospitals will have to do the same starting in 2027.

Some hospitals choose to screen before billing, while others try to collect first. As long as they screen patients before suing them for very old bills, hospitals can still comply with the federal rule that pushed many of them toward presumptive eligibility.

Christus Health, for example, says it screens patients only “after all other eligibility and payment sources have been exhausted.”

Anna Stelter, vice president of policy for the Texas Hospital Association, said hospitals want to check other payment options, such as Medicaid or county safety-net programs, before offering financial assistance.

“We do want to make sure that whoever is financially responsible for that care is identified and pays,” Stelter said. “Charity care is the relief of last resort.”

Publicly posted hospital policies can also be vague about when screening occurs. Cook Children’s Health Care System in Fort Worth, Texas, says its goal is to determine eligibility “as soon as sufficient information is available.”

Who pays the bills when patients get free care?

In one sense, everyone does. Taxpayers help cover some or all of the cost of financial assistance, though the amount differs by hospital.

Roughly half the nation’s hospitals are nonprofit and therefore exempt from most taxes. KFF estimates that nonprofit hospitals received about $24 billion in 2020 in tax benefits they otherwise would have paid in income, sales, or property taxes.

Government-owned and for-profit hospitals have their own tax advantages to help offset the cost of caring for low-income patients. Public hospitals often receive extra support from taxpayers, while for-profit hospitals typically get smaller government subsidies, such as added payments for treating large numbers of uninsured and Medicaid patients.

Whether tax dollars fully offset the cost of financial assistance depends on the amount of government support a hospital receives, information that is often not publicly available. It also depends on how many patients need help, how many meet the hospital’s standards, and how many complete applications. Research shows hospitals spend very different shares on financial assistance, from less than 1% of annual expenses to more than 7%.

Philanthropy and hospital revenue cover costs that tax dollars do not.

This article is part of “Hidden Help,” an investigative series from Tradeoffs and KFF Health News about how hospitals can protect their patients from the life-altering harms of medical debt.

Melanie Evans is a reporter for Tradeoffs, a nonprofit newsroom covering healthcare’s toughest choices. Sign up for the weekly newsletter to get the latest stories every Thursday morning.

Tradeoffs’ reporting for this series was supported, in part, by the California Health Care Foundation, the National Institute for Health Care Management Foundation, and the Solutions Journalism Network.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of KFF’s core operating programs — KFF being an independent source of health policy research, polling, and journalism. Learn more about KFF.

This article first appeared on KFF Health News and is republished here under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.