Arizona Prop 209: Would it Fix the Problem of Medical Debt?
It would yield limited benefits, have unintended consequences, and fail to curb skyrocketing bills.
What is Arizona Prop 209?
Arizona Proposition (Prop) 209, the Healthcare Debt Interest Rate Limit and Debt Collection Exemptions Initiative, is on the ballot on Tuesday. Prop 209, the first ballot measure of its kind in the United States, would do two things:
Put a 3% limit (or a limit equal to the weekly average one-year constant maturity treasury yield, whichever is less) on interest rates for healthcare-related debt.
Increase the value of certain property and earnings exempt from debt collection processes.
House: increase from $250,000 under current Arizona law to $400,000.
Furniture: increase from $6,000 to $15,000.
Vehicle: increase from $6,000 to $15,000 (from $12,000 to $25,000 for people with disabilities).
Bank account balances: increase from $300 to $5,000.
Disposable earnings subject to debt collection (“wage garnishing”): decrease from 25% of disposable weekly earnings or weekly earnings exceeding 30 times the minimum hourly wage, to 10% of disposable weekly earnings or weekly earnings exceeding 60 times the minimum hourly wage, whichever is less.
The campaign is largely funded by SEIU United Healthcare Workers West, a California union, through contributions to the Arizonans Fed Up With Failing Healthcare PAC (Healthcare Rising Arizona). While the campaign focuses on healthcare, Prop 209 would affect the lending market at large.
Did someone forward you this email? Subscribe now to receive weekly blog posts in your inbox.
What problem is it trying to solve?
According to the campaign, Prop 209 seeks to protect consumers from predatory debt collection: “No Arizona family should lose their home or car due to medical emergencies or accidents, or be trapped into unending debt by unfair interest rates on medical care.” Medical debt has long been a source of concern, and the issue took on an air of national emergency when Kaiser Health News reported in June that 100 million Americans carried healthcare debt. Prop 209 doesn’t address medical debt itself; it only seeks to limit the financial consequences of accruing debt.
How well does it solve the problem?
To be sure, limiting interest rates and curbing debt collection would soften the financial consequences of unpaid debts for certain Arizonans in the short term. But Prop 209 ultimately amounts to rearranging the deck chairs on the Titanic. Most Arizonans are able to pay back medical debt, but many are being overcharged in the first place. It won’t reduce the amounts hospitals can charge for care. It won’t equip residents of Arizona with pricing information before they undergo treatment. It also won’t help patients like Ariane Buck, an Arizonan father mentioned in the KHN story who couldn’t get an appointment with his doctor because he had outstanding bills.
What unintended consequences might result?
Making it cheaper to go into debt and harder to recover bad debts has several consequences.
The interest rate cap of 3% is much lower than inflation, so this clause could invite fraud, because debtors could make money in real terms – adjusted for inflation – by postponing payments.
The interest rate cap could also result in higher medical charges and higher selectivity by private healthcare providers to make up for losses. This is the same way a student debt forgiveness only incentivizes new students to borrow even more, giving colleges a green light to raise prices.
Limits on debt collection means that lenders are going to have a harder time recovering debt. In turn, they will be more reluctant to lend, and they will charge other customers more to make up for the shortfall.
Are there better ways to tackle the problem?
Some states have cracked down on predatory debt collection, not by capping interest rates or setting dollar amounts on exempt collections, but by outlawing certain practices. For instance, Texas banned wage garnishments for most lenders.
But high interest rates and predatory debt collection are just symptoms of the greater issue of rising medical costs, which have exceeded general inflation for decades. The KHN writeup quotes Dr. Rishi Manchanda, a doctor working with low-income patients in California: “We have a health care system almost perfectly designed to create debt.” If that is true, then changing the rules surrounding how medical debts are collected won’t fix the underlying problem. When they receive care, patients are often in the dark about the charges they’re incurring. And many hospitals – including nonprofit institutions – are known for extracting unjustifiably high amounts from patients who don’t have the ability to pay, instead of providing charity care.
Federal price transparency rules and the No Surprises Act of 2021 aim to tackle that issue, and while their design and implementation are imperfect, they are more likely to make a dent in the issue of medical debt than Prop 209.