New York City is among the cities and states that are buying and forgiving medical debt for $1. Pitfall: There is usually no way to ask for forgiveness.
Study finds millions of Americans have billions of dollars in medical debt
A study by West Health and Gallup Healthcare found that 31 million Americans will have $74 billion in medical debt by 2024.
Mayor Eric Adams announced on October 22 that more than $135 million in medical debt owed by thousands of New Yorkers has been canceled, marking the latest effort to ease the enormous financial burden on millions of Americans.
The city partnered with Undue Medical Debt in 2024, investing $18 million over three years to reduce medical debt for 500,000 residents, valued at more than $2 billion. This nonprofit organization specializes in purchasing and forgiving debt portfolios from hospitals, healthcare providers, and collection agencies at a fraction of the cost.
Approximately 100 million Americans owe more than $220 billion in medical debt, according to a recent analysis of Census data by the Peterson Center on Health Care and KFF. A 2023 study by the Commonwealth Fund found that even those with insurance report struggling to pay their medical bills, with some cutting back on necessities like food, utilities and rent, or skipping or postponing medical care altogether.
Mitigating these costs could be more important than ever, as an estimated 10 million Americans risk losing health insurance if Obamacare subsidies at the center of the battle for Medicaid cuts and government shutdowns continue to expire.
“We hear every day from the constituents we serve who are concerned about access to health care, that it’s unaffordable, and that’s a really hard pill to swallow,” said Allison Sesso, president and CEO of Wrongful Medical Debt. “And this system is really broken.”
More cities and states are waiving medical debt
New York is one of a growing number of cities and states working to address this problem by forgiving large amounts of medical debt.
Cook County, Illinois, which includes Chicago, became one of the first areas to use American Rescue Plan Act recovery funds to eliminate medical debt in July 2022, according to a report from the Institute on Race, Power, and Political Economy. Since then, at least 26 state and local governments have pledged to use public funds to alleviate medical debt.
According to the report, Connecticut will be the first state to launch a medical debt relief initiative in 2023, followed by Michigan, Arizona, New Jersey, Illinois, Rhode Island, and North Carolina, which reportedly has the most extensive program targeting $6.5 billion in debt for 2.5 million residents. Similar plans proposed in Pennsylvania, as well as St. Louis and Barberton, Ohio, have stalled.
The government partnered with unjust medical debt in all of these efforts, except for the program in Columbus, Ohio, according to the report.
No application process is required to receive one-time relief. Sesso said the nonprofit uses a proprietary “debt engine” to comb through medical debt portfolios to identify eligible candidates. Generally, these include people who earn less than 400% of the federal poverty level or whose debt equals at least 5% of their household income. Wrongful medical debt uses funds from charitable donors or public funds provided by local governments to purchase the debt.
Debt relief alone is not enough, advocates say
Sesso said that while many recipients say debt forgiveness is a huge and unexpected relief, some “continue to worry about the future.” He acknowledged that immediate debt relief would not address the root of the problem or prevent future debt burdens.
“We’re not pretending that what we’re doing is solving the problem,” Sesso said. “It solves personal problems, and I think that’s necessary, necessary, and a great thing.”
He said debt relief needs to be combined with policy changes such as interest rate caps and preventing medical debt from appearing on consumer credit reports.
When consumers have medical debt, it is often turned over to collection agencies and appears on credit reports, which can make it difficult for people to buy a home or finance a car. The Biden administration proposed a federal rule that would ban unpaid medical debt from appearing on consumers’ credit reports, but a judge granted a request from the Trump administration and two financial industry groups to overturn the rule.
Some states have stepped in to enact additional protections, such as implementing bans on medical debt credit reporting and encouraging health care providers to adopt debt relief policies. For example, Ohio lawmakers recently proposed a bill that would cap interest rates at 3% and ban wage garnishment practices for medical debt.
Maryland, California, Maine, New York and Colorado rank among the states with the best regulations to protect consumers from medical debt and its consequences, according to a policy analysis by Innovation for Justice and researchers at the University of Arizona and the University of Utah.
“I think states are increasingly interested in doing something,” Sesso said. “And we hope to see more movement in terms of patient protection.”
Contributor: Ken Alltucker, USA TODAY. Reuters
