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Medical debt poses a significant financial burden for many individuals, and debt collectors' actions can introduce additional complexities. An astonishing 31 million Americans had accumulated medical debts totaling approximately US$74 billion in 2024. A key question arises regarding whether debt collectors are legally permitted to charge interest on unpaid medical bills, potentially increasing the amount owed.
In this blog, we will explore what borrowers can do about increasing medical interest rates and whether a collection agency charges interest on medical bills. We will also examine consumer rights concerning medical debt and the viewpoints of legal governing bodies regarding debt management. Let’s look at how you can alleviate your medical burdens.
Medical debt arises from interactions with healthcare providers, including hospitals, doctors, and nurses. Approximately 6% of American adults owe over US$1,000 in medical debts. Two-thirds of these debts stem from one-time or short-term medical expenses related to an acute medical need.
Medical debts are unique because consumers have less ability to shop around for services. After billing, health service providers send unpaid accounts to third-party collections, which have limited access to the provider’s records. This makes it difficult for consumers to verify that the medical debts are valid.
As a consumer with debt, you should know that you have rights. Despite the negative emotions associated with owing debts, understanding your rights enables you to manage your medical debts more effectively.
Before paying any third-party debt collection agency, it is important to confirm the accuracy of the claim. In addition, you also have the right to request a verification of the debt from the debt collector.
Here are some of your rights and options to understand before paying a debt collector:
Surprise medical bills often arise when you cannot control your healthcare providers. Federal laws protect consumers from unexpected medical charges, and debt collectors may not be able to collect on these debts.
Hospitals, as well as any owners of your hospital debts, including collection agencies, cannot report any negative information to a credit reporting agency. Additionally, they are prohibited from filing a civil complaint until 180 days after the initial billing. Debt collectors must inform you of this timeline in their initial written communication.
Depending on your income, you qualify for free or reduced care if you are unable to pay a specific medical bill. Patients facing high medical expenses who are at or below 400% of the federal poverty level are eligible to apply for a hospital’s charity care or discount payment policy.
Hospitals must provide an official notice before transferring a hospital debt to a debt collector. This notice includes a copy of the application for free or reduced care under the hospital’s policy.
One important element that debt collectors don't want you to know is that your debt is subject to the statute of limitations. The law specifies the period during which you can be sued for a debt and taken to court. Each state has its timeline, typically ranging from four to six years. If you receive a call about an older debt, it's essential to verify the statute of limitations in your state.
Also read: Rights and Advice on Debt Collector Home Visits
A debt collector’s ability to charge interest on medical bills depends on contractual agreements and legal procedures.
Also read: Finding Legal Help for Debt Collection Issues
Interest rate caps, in addition to charges in medical debts, further add complexity. Many states align their medical debt interest caps with broader consumer debt protections, often restricting such rates to single-digit percentages to ensure fairness.
New York’s hospital financial assistance programs now require hospitals to provide financial assistance to patients whose pocket costs increased by 10% of their annual costs. The state also prohibits any form of discrimination based on immigration status. In addition, there is an increase in the amount of financial assistance that hospitals must provide to eligible patients.
Delaware now prohibits creditors from charging excessive interest on medical debts, while New York and New Jersey have established interest rate caps. Delaware also requires all hospitals to offer patients reasonable payment plans and limits the amounts patients pay monthly. The states also have new restrictions on the sale of medical debts.
Florida and Virginia now prohibit medical debt collection lawsuits unless filed within three years of the debt becoming due. States require hospitals and third-party debt collection agencies to verify that patients are ineligible for financial assistance before taking legal action to collect medical debts.
Both state and federal policymakers aim to protect patients from rising medical debts. Recent developments at the state level now emphasize downstream solutions for managing medical debts.
Consumer complaints about medical debts made up approximately 11% in 2023. The Consumer Financial Protection Bureau (CFPB) is issuing an advisory opinion to remind debt collectors of their obligations under the FDCPA.
The advisory opinion mandates debt collectors to stay liable under the FDCPA and Regulation F for the following deceptive and unlawful practices in collecting medical bills.
The advisory opinion also interprets the meaning of “in default” purposes of FDCPA section 803(6)(F)(iii). Under the section, both consumers and medical providers determine the terms of the agreement for medical bills.
Your best defence is to engage in a systematic discussion with your provider about an early abscess before sending your account into collections.
Here is a step-by-step approach to managing medical debts with interest:
A debt collection agency must provide you with a written explanation of your medical bills within five days of your request. You should verify that your bill is accurate and up-to-date. This step also helps you avoid scammers and ensures that the bills are authentic.
Upon verification, if there are discrepancies in the bills, you have the right to dispute the collections or contact medical providers and insurance companies to resolve the issues.
Debt collection agencies can work with you concurrently to discuss repayment plans and may accept reduced payments.
Your final step is to negotiate with collection agencies. It is best to make decisions promptly for debt settlements. Don’t pay more than you owe or take on high-interest debt, as it will be challenging to settle.
Establishing a systematic approach to managing medical debts can be challenging. In such situations, the best strategy is to consult a financial advisor or a reputable debt management organization. Shepherd Outsourcing Services can help you manage your medical bills, even those with high interest, and provide a roadmap that aligns with your financial situation.
Medical debt protection is evolving rapidly in several states. Several states are adopting better protection strategies and following effective models to support individuals from financial burdens. Federal regulators may also introduce additional credit reporting measures.
Here are some of the changes in healthcare systems in 2025 to ease medical debts:
As we advance into 2025, healthcare organizations have a distinct opportunity to improve patient financial engagement. Organizations that proactively embrace these changes will better serve their patients while ensuring strong compliance.
Tackling medical debts with high interest rates can be overwhelming. However, understanding your rights against debt collectors can help manage such dire conditions. Both federal and state authorities protect consumers to help them regain control over their finances. Whether disputing an inaccurate charge on your medical bill, negotiating a fair payment plan, or seeking support through financial assistance programs, consumers now have more options to address medical debts proactively.
If you are seeking expert guidance in managing your medical bills, Shepherd Outsourcing Services offers tailored solutions that can lower your financial burdens. Contact us now to discuss your options for tackling medical debts to attain economic stability.
1. Can a debt collector charge interest on medical invoices?
Yes, in some instances, interests may be common in medical bills. Nonetheless, healthcare providers and state laws must permit such interests, which the original agreement must contain.
2. How do you determine whether the interest charged is legal?
The best way to proceed is to request written verification of your debt from the agency. Another option is to review the original billing agreement with the healthcare provider and check state law to determine if the interest is legal.
3. Do unpaid medical debts with interest affect my credit score?
Unpaid bills impact your credit score only after 180 days from the original billing date. This federal waiting period also gives you time to resolve disputes or seek financial assistance.
4. What should I do if the interest charged on my medical bills is incorrect?
You can contest such interest charges in writing. Debt collection agencies can investigate your disputes and halt collection efforts during this process. You may also seek assistance from legal counsel.
5. Could a medical debt be reduced or forgiven?
Yes, charity care and financial assistance programs are available if your income is below 400% of the federal poverty line. In some cases, debt collection agencies may also accept reduced lump-sum payments or interest-free payments.
©2024 by Shepherd Outsourcing.