Local governments in Ohio and Illinois are using money from the American Rescue Plan Act to relieve residents struggling with medical debt by partnering with an organization that buys debt and cleans up debtors.
It's a strategy supporters say could be replicated across the country to help erase a multibillion-dollar problem.
On November 9, the city council of Toledo, Ohio, passed a measure to eliminate the medical debt of eligible residents using $800,000 made available to the city through the American Rescue Plan Act (ARPA), a federal law signed by President Joe Biden in March 2021 aimed at helping the country recover from the economic pain caused by the COVID-19 pandemic.
Commissioners in Lucas County, of which Toledo is a part, also was announced they would also contribute $800,000 in ARPA funds. A total of $1.6 million will go to RIP Medical Debt, a New York-based nonprofit that buys medical debt from hospitals in bundles at a much lower price than the actual debt, allowing the money to go further.
This means that $190 million to $240 million of community members' debt will be eliminated, according Michele Grim, the Toledo City Council member who supported the proposal. RIP Medical Debt only has an estimate at this time because the organization won't know the exact amount until it reaches agreements with local hospitals.
Residents must earn a household income of less than four times the federal poverty level, which varies from $13,590 for a one-person household to $46,630 for an eight-person household for the majority of states and have medical debt that is more than 5% of their income to qualify.
I think it was kind of a no-brainer for anyone who is focused on health equity and post-COVID recovery in their communities to get that medical debt off people as quickly as possible.
– Allison Sesso, president of RIP Medical Debt
Grimm, a Democrat and newly elected Ohio state lawmaker, said she would consider introducing a similar proposal in the Legislature. “I would like to explore this in the House. Medical debt is a crisis for everyone and would help the financial recovery of many Ohioans,” he said in an email to the State Newsroom.
“I've had a lot of local governments reach out trying to do the same thing. I hope they can take the Toledo model and make it nationwide. Washington doesn't have a plan to eliminate medical debt, but Toledo, [Ohio] does.”
Debt details
Many Americans have medical debt, and it can have a serious impact on their finances. According to a Kaiser Family Foundation Report published in June, 4 in 10 adults in the United States have some kind of medical debt, and 1 in 5 of those with health care debt don't think they'll ever be able to pay off their debt.
The Consumer Financial Protection Bureau (CFPB) estimates the total amount of medical debt in the U.S. at $81 billion based on data from credit reporting agencies, but acknowledges that total is likely an underestimate since “not all medical debt is reported in collections to consumer reporting agencies.”
A Kaiser Family Foundation analysis of data from the Census Bureau's Survey of Income and Program Participation put the total much higher — at $195 billion, including people who had more than $250 in medical debt.
Medical debt is also more common in certain areas of the country, according to the CFPB, particularly in the Southeast and Southwest. For example, about 22 percent of Louisiana's population has medical debt compared to 2.25 percent in Minnesota, the CFPB report shows. A 2021 study that analyzed consumer credit reports from 2009 to 2020 found that medical debt was more prevalent in low-income communities in the South.
More than 18% of Arcans have medical debt “transactions” on their credit records, according to CFPB data. The medical debt of these residents totals more than $838 million and the average individual debt is $1,700.
RIP medical debt helped cancel debts in Arkansasbut not using federal stimulus money.
In some cases, medical costs have driven people into bankruptcy. A study posted by the American Journal of Public Health in 2019 showed that 66.5% Bankruptcies were either because a person's illness affected their ability to work or their medical care was too expensive.
“No Mind”
Grim said she was inspired to do something about medical debt after seeing what Cook County, Illinois, was doing to free its residents from their medical debt. In July, the Cook County Council unanimously approved expenses 12 million dollars of ARPA funds to effectively get rid of $1 billion in people's medical debt. Grimm said she modeled Toledo's plan closely after Cook County's.
Allison Sesso, president of RIP Medical Debt, said more local governments have contacted the group about using ARPA funds to eliminate medical debt after learning about the efforts of Toledo and Cook County.
“I think it was a no-brainer for anyone who is focused on health equity and post-COVID recovery in their communities to get that medical debt off people as quickly as possible,” he said.
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RIP Medical Debt was founded in 2014 by Craig Antico and Jerry Ashton, who are former debt collectors. Sesso said the pandemic has brought renewed attention to medical debt and problems with the U.S. health care system in general.
“Part of the equation when you're thinking as a policy maker in terms of solving these problems for individuals is that we're seeing rising costs of living, all this inflation and all these other things that make it harder and harder for families to make ends meet “, he said. “ … It's an American experience for you to go to a health care provider and think about how you're going to finance that health care. And even if you can put yourself on a payment plan and it doesn't turn into debt, that means you're doing it with a lot of sacrifice.”
Brady Chalmers, an administrative analyst in the office of Cook County Board President Tony Preckwinkle, said Preckwinkle took that approach because she wanted to focus on measures to alleviate poverty and promote public health. RIP Medical Debt was the organization that seemed best positioned to achieve this policy at the scale that Cook County needed. Chalmers added that one of the advantages of the move was how much further the money could go when it cost pennies on the dollar to buy the debt.
“$12 million to buy a billion dollars worth of debt is a really good bang for the taxpayer's dollar,” he said.
Chalmers said this could make it a little easier for people to make financial progress.
“Hopefully, they'll improve their credit scores and that allows them access to financial tools they wouldn't otherwise have,” he said. “We also want them to feel comfortable using the hospital system. We don't want to live in a world where people have to choose between rent and going to the doctor when they need both because they have some old debt. This allows us to free these people from this burden.”
Information for this article was contributed by Hunter Field of the Arkansas Advocate.
