A boipartisan bill regulating how medical debt can be collected was passed last week by the Indiana Senate and is one-half of the way to becoming law.
The legislation, Senate Bill 85, cleared the Indiana Senate by a 33-15 vote and now heads to the Indiana House of Representatives. For collection agencies, hospitals, creditors, and collection law firms operating in or servicing Indiana, the bill represents a significant shift in how medical debt can be pursued if it becomes law.
At the center of Senate Bill 85 are new limits on wage garnishment tied specifically to medical debt. Currently, Hoosiers can have up to 25% of their wages garnished. Under the bill, patients earning 200% or less of the federal poverty level would be fully exempt from wage garnishment related to medical debt. For consumers earning above that threshold, garnishment would be capped at 10% of disposable earnings above the poverty level amount. Lawmakers emphasized that the bill does not eliminate the obligation to pay medical bills or prevent lawsuits from being filed to collect unpaid balances.
The bill also includes new requirements aimed squarely at hospitals. Hospitals would be required to offer payment plans of at least 24 months for qualifying patients, with monthly payments capped at 10% of gross household income and interest limited to 3% annually. The first payment could not be due until at least 30 days after the date of service, and payment plans would be suspended during insurance coverage appeals, up to 120 days.
Another notable provision prohibits liens from being placed on a patient’s principal residence to collect medical debt. This protection applies to homes located in Indiana that are owned or jointly owned by the patient. Judgments for medical debt would also be required to disclose that the obligation is health care related, reinforcing the separation between medical debt and other consumer obligations under state law.
The bill has long been championed by Sen. Fady Qaddoura, who co-authored it with Sen. Ed Charbonneau. Supporters argue the measure reflects growing concern over the impact of medical debt on households, while opponents have raised questions about how the restrictions could affect hospital revenue and downstream collection activity.
