Medical debt is a crisis. Is debt forgiveness the answer?

As medical debt grows more prevalent and harmful, state and local governments are taking action to forgive debt in their region. How can we expand these one-off actions into policy changes that prevent debt before it starts?

The toll of medical debt

Medical debt keeps the most vulnerable under water with an unavoidable financial burden, impacting family financial stability and access to essential healthcare services. As many as four in ten Americans are in medical debt or are unable to pay their medical bills. It’s concerning that nearly half of U.S. adults report being unable to pay a $500 medical bill without going into debt, yet a quarter of adults with debt owe $5,000 or more. This financial instability can compel families to deplete their savings, sacrifice fundamental necessities, and redirect resources from housing, education, and retirement.

Beyond the financial toll, medical debt acts as a barrier to healthcare, causing individuals to delay necessary treatments out of fear of incurring additional costs. Studies have shown that areas with high levels of medical debt experience poorer health outcomes and increased premature deaths.

Forgiving debt for health

To address this public health crisis, state and local governments are partnering with debt cancellation organizations like RIP Medical Debt, who take donor money to purchase medical debt from providers and collection agencies at a steep discount and forgive it.

Many government officials share a similar mission to Governor Ned Lamont of Connecticut who hopes to strengthen the financial standing in a state with a large wealth gap by “liberating many residents to buy a home, start a business or continue with their education.” The state intends to use $6.5 million allocated from President Joe Biden’s American Rescue Plan Act (ARPA) to help residents burdened by medical debt. This initiative targets individuals whose medical expenses account for 5% or more of their annual income, or households earning up to 400% of the federal poverty line (or about $125,000 in 2021).

Similar efforts are growing across the country:

• New York City is committing $18 million to relieve approximately $2 billion in medical debt over three years, benefiting hundreds of thousands of eligible individuals.
• Columbus, Ohio, has partnered with local hospital systems to forgive $335 million in medical debt for residents meeting income thresholds.
• Cook County, Illinois, has allocated $12 million in relief funds to abolish medical debt for over 150,000 residents.
• Arizona plans to utilize up to $30 million to forgive medical debt for up to one million eligible residents.
• Pennsylvania has earmarked $4 million to erase nearly $400 million in medical debt and implement measures to prevent future debt accumulation.
• New Orleans plans to use $1.3 million from relief funds to cancel an estimated $130 million in debt for residents. 
• Los Angeles is considering spending $24 million to erase medical debt for over 800,000 residents.

The need for upstream and downstream solutions

The commitment to prioritizing medical debt forgiveness is a remarkable move that will provide significant support to many qualifying residents. However, one-time debt forgiveness is not a panacea. In fact, the New York Times reported on a recent randomized trial of patients who had their debt forgiven from 2018-2020 compared to those who had not. The study found no improvement in mental health or credit scores among patients who had debt forgiven, on average. Even when patients had their current medical debts paid off, they still had trouble paying other bills a year later. Since the years in which the study was done, RIP Medical Debt has since adjusted their strategy to erase debts more quickly and expand who is eligible for debt relief, according to a response from the organization.

While the act of debt cancellation offers immediate relief, it’s essential to consider more comprehensive approaches to preventing medical debt by ensuring healthcare affordability and accessibility, thereby laying the foundation for a healthier and more financially secure future. The majority of hospitals are private nonprofits and have a crucial role to play in supporting their communities by investing in financial assistance programs and community health initiatives (several states have already passed legislation to that end). Research suggests expanding health insurance coverage and supporting patients with multiple health-related social needs to prevent medical debt. Organizations like RIP also emphasize the need for policy fixes to the medical debt crisis, such as the recent removal of medical debt from credit reporting.

“Instead of bailing out uncharitable hospitals that are failing to meet their legal obligations, public officials should make it easier for patients to obtain the financial assistance to which they are entitled.”

– Luke Messac & Astra Taylor, The Washington Post

Ultimately, with the costs of healthcare skyrocketing, this trending wave of debt forgiveness can’t guarantee that all of a person’s future incurred medical debt will be eliminated. Therefore preventing this financial burden requires a multifaceted approach that combines short-term relief measures with long-term systemic changes.