Arizona Proposition 209 would reduce top interest rates on medical debt
Arizona will serve as a national test case when voters are asked to approve a ballot measure that backers say is intended to protect consumers from bankruptcy and poverty because of medical debt.
A "yes" vote on Arizona Proposition 209 — the Predatory Debt Collection Act — on Nov. 8 would reduce maximum interest rates on medical debt for state residents and increase the value of assets protected from debt collectors.
If successful, it also could serve as a template for ballot measures in other states.
Election results: Proposition 209 would lower maximum interest rates on medical debt
"No one should be trapped in debt simply because they needed medical care, yet tens of millions of Americans are stuck with thousands of dollars of medical debt," said Kelly Hall, executive director of the Fairness Project, a national nonprofit that funds, organizes and advocates for ballot measures and is supporting Proposition 209.
"If Prop. 209 succeeds in Arizona this year, we can see this issue going on the ballot in more states."
Proposition 209 would:
Lower the interest rate cap on medical debt.
Increase the amount of equity in a person's home that is protected from certain creditors, including tax liens from state and local governments.
Increase the dollar value of personal property and assets exempt from the claims of creditors.
Increase the amount of earnings exempt from the claims of creditors.
Proposition 209 opponents from the business community, including financial institutions, say the way the initiative is written is too broad because some of its components will apply to more than just medical debt. The measure raises the value of assets shielded from all creditors, not just health care creditors.
And critics say the measure will weaken creditors' ability to collect debts. As a result, financial institutions will be less willing to give out loans, thus hurting those working Arizonans that the measure is trying to protect, detractors say.
Who is supporting Proposition 209?
Backers of the measure emphasize the initiative doesn't forgive anyone's medical or consumer debts. Rather, it gives people leverage to pay what they owe without losing their homes, cars and all their savings.
Arizonans Fed Up with Failing Healthcare is the ballot measure committee behind Proposition 209. Healthcare Rising Arizona is the health care advocacy group promoting it, with support from California-based SEIU United Healthcare Workers West union.
Supporters who have signed on in favor of a "yes" vote on Proposition 209 include the Arizona Faith Network, the Arizona Students' Association, the Southwest Fair Housing Council, the Arizona Education Association, the Tucson-based Center for Economic Integrity, and numerous health care providers.
"These are protections that people generally agree with, that you shouldn't lose your car. If you have debt you have to pay off, in Arizona, you need a car to get to work," Healthcare Rising spokesperson Rodd McLeod said. "Losing their car doesn't help them pay off the debt."
Debt collection is an economic justice issue that the Center for Economic Integrity has been working on for years to protect working families, executive director Griffith Kelly writes in his "yes" argument that appears in the state's Arizona 2022 General Election Publicity Pamphlet.
"It is important to limit wage garnishments and to protect checking account balances for working families," Kelly writes. "Protections for assets such cars and homes are also crucial."
Proposition 209 would:
Lower the maximum interest rate on medical debt to 3% per year from the current rate of 10% per year.
The value of a debtor's home protected from creditors would increase to $400,000 from $250,000.
The value of a debtor's household furniture, furnishing, goods and appliances protected from debtors would rise to $15,000 from $6,000 or to $25,000 from $12,000 if the debtor has a physical disability.
The value of a debtor's bank account protected from creditors would increase to $5,000 from $300.
The portion of a debtor’s weekly disposable earnings that is subject to debt collection actions (other than support payments) would decrease to 10% of disposable earnings from 25% of disposable earnings.
Who is against Proposition 209 and why?
Among those who have signed on as opponents of Proposition 209 are Victor Riches, president and CEO of The Goldwater Institute; chambers of commerce in both metro Tucson and greater Phoenix; and Paul Hickman, president and CEO of the Arizona Bankers Association.
Critics say the added consumer protections would make it more difficult for financial institutions to collect the money they're owed.
Backers of the initiative who have been promoting the measure as protecting consumers from mounting medical debt are being misleading, opponents say, because increasing the value of assets protected from creditors won't apply solely to medical debts, but to any consumer debt.
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"While the intention of the ballot initiative may be to protect consumers from unfair medical debt collection practices, the language of the measure could have unintended consequences that make it more difficult for lenders to collect on all legitimate debts," Todd Sanders, president and CEO of the Greater Phoenix Chamber, writes in Arizona's 2022 General Election Publicity Pamphlet.
The measure essentially, "makes anyone who earns less than $50,000 per year untouchable by creditors" because it raises the level of wages protected from garnishment, as well as the threshold of money in bank accounts protected from creditors, Michael Guymon, President/CEO of the Tucson Metro Chamber, writes in his argument in the election publicity pamphlet.
Those against Proposition 209, including Guymon, say the measure will weaken the ability of creditors to collect the money they are owed for all debts, not just medical debts. As a result, lenders will be less willing to give car, home and personal loans to working families, they say.
"Unfortunately, Prop. 209 is neither a sustainable nor a wise path for Arizona," Hickman writes in his argument against the measure.
"By imposing a series of draconian requirements on Arizona financial service firms, Prop. 209 would severely restrict the ability of Arizona consumers and businesses to access critically important lines of credit."
Arizona only recently raised the portion of a home's value shielded from creditors to $250,000 from $150,000, Hickman said in an interview, referring to a change in Arizona law that took effect Jan. 1.
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"We didn't object to that," Hickman said of the change, which was passed by the state Legislature and signed into law by Gov. Doug Ducey.
Proposition 209 would raise the shielded home value in Arizona even more, to $400,000. So for a small business loan where a home is used as security, that would mean $400,000 is considered a non-recourse loan, Hickman said.
"They are going to be much more reluctant to lend," he said of financial institutions, adding that the $400,000 value would "absolutely" impact a creditor’s ability to collect delinquent debts.
A strike everything amendment bill during the most recent Arizona legislative session would have raised the home value shielded from creditors to $450,000, but the bill failed.
About 27% of Arizonans have debt in collections, the Urban Institute says
Research from the Consumer Financial Protection Bureau based on December 2020 data says 15% of Arizonans had medical debt, with a mean balance of $2,546.
The most recent data from the Urban Institute, a Washington, D.C., think tank, says about one in 10 Arizonans, or 12%, has medical debt in collections. The number is based on credit data from February 2022.
"Debt in collections" includes past-due credit lines that have been closed and charged off on the creditor’s books as well as unpaid bills reported to the credit bureaus that the creditor is attempting to collect. For example, credit card accounts enter collections once they are 180 days past due, the Urban Institute says.
Slightly more than one quarter of state residents — 27% — have any kind of debt in collections, and the median level of overall debt in collections is $1,903, the data shows. McLeod said medical debt sometimes shows up in general debt categories because people use credit cards to pay their health care bills.
People of color, who are also more likely to be without health insurance, are disproportionately affected by debt, the Urban Institute research says.
If passed, the cap on medical debts in Proposition 209 would apply only to medical debts incurred after the measure takes effect. In other words, old medical debts wouldn't be protected with the 3% maximum cap.
But Arizonans with old debts would be protected in other ways, including the reduction in wage garnishment and the increased value on assets protected from creditors.
"It's important to have these protections in the law so that families have some breathing room to pay off their debts," McLeod said. "It's not saying anyone doesn't have to pay it (the debt) back. It's saying let's make sure people are able to continue to do their job and earn some money so that they can pay it back."
Prescott resident Liz Gorski was a passenger in a car when she was in a serious accident 18 years ago. She was in a coma for five days, had numerous surgeries and multiple broken bones.
She's only now close to paying off the debt she incurred as a result of that crash. Though she had health insurance coverage at the time of the accident, out-of-network bills, combined with interest and ongoing medical expenses, left Gorski at one time owing about $50,000.
Gorski has since been able to get her debt down to $2,700. But it's taken nearly 20 years, and for many of those years she was working three jobs at once while trying to make ends meet as a single mom.
"It's such a complex issue. The system needs to be revamped," said Gorski, who is supporting Proposition 209. "Now my daughter is afraid to go to the doctor because she doesn't want to have debt."
Reach the reporter at Stephanie.Innes@gannett.com or at 602-444-8369. Follow her on Twitter @stephanieinnes.
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This article originally appeared on Arizona Republic: Arizona Prop. 209 would reduce max interest rates on medical debt
