Proposition 209, a ballot initiative to reduce the maximum interest rate on medical debt and update existing asset and financial protections, has passed.
Supporters of this proposition say that current medical debt interest rates and asset protections are not enough to keep predatory collection practices at bay. However, those on the opposing side argue that restricting debt collection will make it harder for people to borrow money.
The U.S. has a longstanding issue with medical debt. A report from the Consumer Financial Protections Bureau says that 58% of debt collection reports filed in 2021 contained medical debt.
On a statewide level, debt is still a significant problem. According to 2022 data from the Urban Institute, 27% of Arizona’s population has debt in collection, and the median amount of debt in collections statewide is $1,903.
Current state law protects $250,000 of someone’s home value and $6,000 worth of home furnishings from debt collection. It also protects $6,000 worth of motor vehicle equity, but if someone or their dependant has a physical disability, that amount is $12,000.
Additionally, collectors can’t touch more than $300 worth of funds in a single account of a financial institution. Lenders can collect a maximum of 25% of someone’s post tax income per work week or 30 times the federal minimum wage, whichever is less.
The current maximum interest rate on medical debt is 10% per year.
Now that the initiative has passed, the home value protection will increase to $400,000, and the household furnishings protection will rise to $15,000. The motor vehicle equity exemption will also increase to $15,000 or $25,000 if someone or their dependent has a physical disability.
Furthermore, the financial institution holding protection will increase to $5,000. Debtors will be able to collect a maximum of 10% post-tax earnings or 60 times the applicable minimum wage, whichever is less (applicable meaning state, federal or local minimum wage, whichever is highest).
Finally, the maximum interest rate on medical debt will be lowered to 3% per year, and the relevant protections outlined in the proposition will adjust to inflation.
McLeod says that these new protections will curb predatory debt collection practices that put Arizona residents’ livelihood in jeopardy.
“It’s our belief that no Arizona family should lose their home or their car, or struggle to put food on the table because of a medical emergency or an accident, or be forced into an unending cycle of debt by unfair interest rates on medical care,” he said.
David Sklar, an emergency physician and professor at the College of Health Solutions at Arizona State University, says that capping medical debt interest may lead more people to seek out healthcare.
“I think at least from a psychological perspective, maybe, people will be a little bit more willing to get necessary care because they would not feel quite as much at risk in terms of this debt accumulating,” he said.
Opposition to the initiative largely comes from businesses and advocates for a free market. Small business owner and Protect Our Arizona spokesperson Amber Russo argued the initiative will hurt the economy.
“Lending is going to dry up, the rental market is going to be more difficult for people to afford, loans will be more difficult to get with higher interest rates, so it’ll impact me and people like me because our access to credit will be drastically reduced,” she said.
Russo said that lenders will not be able to collect from a hefty portion of people who default on loans, making them unwilling to give credit to those who need it most.
However, McLeod says that lenders already aren’t getting their money back if people’s financial situations prevent them from paying their debt. “We don't think people are going to pay their debt if they're out on the street and made homeless by it,” he said.
There’s also the possibility that the medical industry will try to compensate for lost revenue. Sklar says that opponents worry about providers demanding a higher payment upfront, refusing to negotiate bills or raising prices for treatment.
Despite these concerns, the initiative’s popularity endured until its passing. The Healthcare Rising Arizona website says that over 522,000 signatures were collected to get it on the ballot, the most in Arizona ballot initiative history.