Medical Debt Elimination

Why eliminate medical debt?

Millions of families and individuals are finding themselves saddled with health care debts due to gaps in health insurance coverage. A 2022 survey found that 41 percent of adults (100 million people) currently hold medical debt, and Credit Bureau Data from that year reveals that 13 percent of Americans have medical debt in collections. These debts generally come about through no fault of the individual. When people land in the emergency room, they can’t easily refuse needed care or discharge themselves to find more affordable services.

While medical debt is a widespread issue affecting a broad swath of the population, low-income people and people of color are disproportionately impacted. The burden of medical debt is highly correlated with wealth inequality: households with zero or negative net worth hold nearly 80 percent of medical debt. Black adults are 50 percent more likely and Latinx adults are 35 percent more likely to hold medical debt than white adults, and communities of color disproportionately have medical debt in collections. A 2020 report found that medical debt is also highest among people living in the South and more prevalent in low-income communities in states that did not expand Medicaid in 2014.

Medical debt creates additional burdens for people who’ve just undergone health crises. Faced with medical debts, families often forego necessities like food and clothing, spend down their savings, or take on additional debt. Among households with medical debt, six in ten said they reduced their spending on food and clothing and half said they used up all or most of their savings to pay their medical debt. Households with medical debt face higher risks of food insecurity as well as eviction or foreclosure. People with medical debt avoid getting the health care or prescriptions they need and some hospitals deny care to patients with debts, compromising health. Medical debts in collections reduce credit scores and can lead to wage garnishment and property liens, damaging household finances. Medical debt continues to be the leading cause of bankruptcy.

Polling data shows broad public support for eliminating medical debt, with the majority of those surveyed in both political parties in support of government programs to relieve medical debt.

What are the potential benefits?

Eliminating medical debt provides immediate relief for economically insecure families, reducing stress, increasing financial stability, and improving access to health care. Studies have found that the reduction in medical debt collections following increased insurance coverage via Medicaid expansion led to improved credit scores and better terms of available credit such as interest rates on mortgages, car loans, credit cards, and personal loans. 

Testimonials of individuals whose medical debts were abolished illustrate the potential positive impacts on household finances and economic opportunities:

• Due to the high cost of medical treatment, Sheila delayed medical treatment for recurring kidney stones which resulted in worsening medical conditions, a three-day hospital stay, and ultimately a larger medical bill. As a single parent working and in school full-time, she faced the choice of sustaining food and shelter for her kids or paying her medical bills. After her debt was absolved, she was able to upskill, shift careers, and help others in similar circumstances. 
• After several essential back surgeries and a forty-five day hospital stay, Etienne had nearly $500,000 in unpaid medical bills. Because of this debt, he was unable to sign for a student loan for his child hoping to enter the medical field. With his medical debt eliminated, Etienne can better meet his own and his family's needs.
• Samantha, a single parent, had some emergency room visits and then surgery, much of which was not covered by her insurance, leaving her with a large medical bill that went unpaid. She wanted to get a car but needed to improve her low credit score due to medical debt. Samantha said, “With this pay off my credit became high enough that I can actually start looking for a car for us!”

How do you design and implement an equitable program?

The vast majority of government programs to cancel medical debt have partnered with the nonprofit organization Undue Medical Debt (formerly known as RIP Medical Debt), to implement debt relief. Founded by two former debt collection executives in 2014, Undue Medical Debt negotiates with hospital systems to purchase large bundles of medical debt and then erase the accounts with no tax consequences to recipients. As of May 2024, Undue Medical Debt has eliminated over $11 billion dollars of medical debt for 7.4 million families. 

Recognizing that medical debt burdens many households that are above the poverty line and therefore do not qualify for hospitals’ charity care programs, Undue Medical Debt uses two criteria for financial hardship: 1) having household income at or below 400 percent of the current Federal Poverty Guidelines, or 2) having medical debts that are 5 percent or more of their household income. 

After a jurisdiction commits ARPA or other public funds and contracts with Undue Medical Debt, the program follows four general phases:

1. Developing healthcare system collaborations. Undue Medical Debt begins working with area healthcare providers to establish debt elimination programs.
2. Identifying eligible debt. The hospitals share patient account data files with Undue Medical Debt, which then integrates data from FinThrive on estimated household income, liabilities, and assets to identify qualifying debt based on their financial hardship criteria. “Our goal is to make it automated and intentionally efficient (for participants),” Allison Sesso, Undue Medical Debt’s President and CEO said.
3. Purchasing the debt. Undue Medical Debt then buys portfolios of qualifying debts at fair market value, which averages under $1 per $100 of medical debt.
4. Notifying beneficiaries. Undue Medical Debt sends letters to the debt holders explaining that their accounts have been acquired and erased. There are no strings tied to the debt relief, and no tax burdens for those whose debt is relieved.

The cycle repeats when a new healthcare provider partnership is established. 

One important benefit of partnering with Undue Medical Debt is that as a charity, the organization can leverage its own funding to work with each healthcare system’s entire patient portfolio, regardless of where those patients live (and unconstrained by ARPA’s requirements to benefit residents of the jurisdiction granted the funds). In Toledo and Lucas County, for example, the program established two healthcare system partnerships that cleared the debts of 41,000 city and county residents, and also about 72,000 patients of those hospitals who live in other parts of the Toledo metropolitan area (see our case study). 

The example of Columbus, Ohio illustrates how municipalities can partner directly with hospital systems to eliminate medical debt. The city of Columbus worked directly with the Central Ohio Hospital Council, which includes all four of the City’s hospital systems, to administer a medical debt cancellation program that absolved $335 million in medical debts held by 340,660 households (see our case study). While the City did not formally partner with Undue Medical Debt, the organization advised Columbus and the City followed Undue’s blueprint in terms of eligibility criteria; notification of debt elimination via letters, with no application or selection process; and unconditionality of debt relief. 

Jurisdictions exploring medical debt abolition programs should consider the following emerging best practices to ensure equitable outcomes. 

• Assess the local medical debt challenge. The prevalence of medical debt varies community to community, as shown in the Urban Institute’s map of medical debt in collections. Jurisdictions should analyze the breadth and depth of medical debt burden, identify the most impacted populations and the hospitals that serve them, gather testimonials from impacted residents, and develop recommendations for addressing medical debt. This data gathering can help jurisdictions understand the scope of the issue, engage partners in developing solutions, and build broader political and public support to take action. The Los Angeles County Health Department, for example, released Medical Debt in LA County: Baseline Report and Action Plan in June 2023, estimating that a $24 million public investment could alleviate $2 billion in medical debt. The report was a step toward action: the Board of Supervisors’ passed a motion in October 2023 examining the feasibility of medical debt elimination.
• Engage healthcare providers. Relationships with hospitals are critical to successful medical debt elimination programs, whether the programs are administered by an intermediary like Undue Medical Debt or directly by the jurisdiction. Partnering with Undue Medical Debt can help foster systems change, providing helpful research and data to support hospitals in reflecting and improving on their debt management practices. For municipalities, conversations with hospital systems can increase their knowledge about medical debt locally and inform action strategies.
• Keep the administrative burden on the jurisdiction. In all medical debt relief programs to date, jurisdictions have bought and absolved debt without requiring residents to apply to the program. This practice eliminates the administrative burden for residents already facing financial hardships and should continue.
• Elevate public awareness about how the program works. Public awareness campaigns help residents understand that the relief is real and can share information to help prevent problematic medical debt in the future. Through websites and other communications methods, jurisdictions can clarify how the program works, including that residents cannot apply directly to the program.
• Create mechanisms to evaluate equitable program implementation. Jurisdictions should create goals and track progress as the program is implemented. Cook County, for example, is tracking its impact in terms of debt relieved and residents served by zip code. Using program data, jurisdictions should develop a final report that evaluates the process and the level of equitable impacts. Also, jurisdictions and advocates can use stories shared voluntarily by program beneficiaries to build support for additional strategies, policy priorities, and structural changes to address medical debt.

Where is it happening?

Cook County, Illinois, was the first jurisdiction to launch a medical debt elimination program in July 2022. As of June 2024, 19 additional cities and counties, Washington D.C., and five states—Arizona, Connecticut, Illinois, New Jersey, and Pennsylvania—have proposed or passed legislation committing public funds to abolish medical debt. Over $60 million of ARPA funds have been allocated towards eliminating medical debt. The policy tracker map below shows all state and local medical debt elimination programs to date, including the cost of the program and projected and actual debt relief impacts.

Cook County, Illinois

In July 2022, the Cook County Board of Commissioners approved $12 million of ARPA funding for the Cook County Medical Debt Relief Initiative (MDRI)—a three-year partnership with Undue Medical Debt to eliminate up to $1 billion in medical debt for Cook County residents. The groundbreaking initiative was sponsored by Cook County Board President Toni Preckwinkle. In May 2023, MDRI announced its first debt cancellation agreements with multiple area hospitals to eliminate $80 million in debt for 73,000 residents. As of February 2023, MDRI has canceled $280 million in medical debt for more than 158,000 residents. The County is tracking its impact by zip code. While ARPA funds cannot be used to cancel debts held by Cook County Health public hospital system, the hospital plans to participate and Undue Medical Debt will use privately fundraised dollars to purchase the debt.

Toledo, Ohio

In November 2022, the Toledo City Council approved $800,000 in ARPA funding, less than 1 percent of their total ARPA allotment, for a partnership with Undue Medical Debt. Lucas County contributed $800,000 from its general fund, creating a $1.6 million program to eliminate up to $240 million of medical debt for an estimated 41,000 city and county residents. As of April 2024, the initiative has struck deals with both major hospital systems (Mercy Health and ProMedica), abolishing $230 million in medical debt for 113,000 former patients, including 41,000 city and county residents. “Hopefully this effort starts an ongoing conversation about why Undue Medical Debt exists,” Ohio State Representative Michele Grim, who spearheaded this effort during her council tenure in Toledo, says. “Why does our healthcare system look like this? Does it really have to be this way?”

Pittsburgh, Pennsylvania

In December 2022, the Pittsburgh City Council approved $1 million in ARPA funding to eliminate $115 million of medical debt for an estimated 24,000 city residents in partnership with Undue Medical Debt. This program’s eligibility requirements are more stringent than Undue Medical Debt’s programs with other jurisdictions: patients must have a household income of less than three times the federal poverty level of $43,000 a year, or one that is 65 percent of the area’s median income of about $54,000. The program’s final contract passed August 1, 2023. The Pennsylvania State House passed legislation creating the Pennsylvania Medical Debt Repayment Program in June 2023, laying the groundwork for state-wide medical debt relief. Appropriations for this program are yet to be determined.

What are complementary policies?

Ultimately, upstream policies ensuring comprehensive healthcare coverage for all are needed to address the root causes of medical debt, but there are multiple ways to address medical debt in the short-term while building toward that end goal. Recognizing the widespread negative impacts of medical debt, many state governments have passed policies to reduce the incurrence of patient debt, increase access to debt relief, and minimize the consequences of medical debt. New York, Colorado, Connecticut, and Illinois, for example, have banned health care providers from reporting medical debt to credit agencies, and the federal Consumer Financial Protection Board is seeking to do the same. The Biden Administration has taken steps to address medical debt and in May 2024, a group of Congressional leaders introduced the Medical Debt Cancellation Act, which would establish a grant program canceling medical debt, wipe medical debt from credit reports, and increase hospitals transparency with respect to financial assistance and billing.

While states and the federal government have the most tools at their disposal to address medical debt, local governments can pursue several additional strategies to mitigate and reduce medical debt:

• Require or encourage hospitals to broaden eligibility for financial assistance. Local governments can advocate for hospitals to broaden eligibility for financial assistance, including to undocumented immigrants who are often uninsured, and make it easier for patients to request assistance. They can also encourage hospitals to use presumptive eligibility to reduce administrative burden for patients, automatically qualifying them for financial assistance if they are eligible for SNAP, Medicaid, or other means-tested benefits.
• Increase hospital transparency with respect to pricing, financial assistance, and billing practices. In June 2023, New York City Council passed legislation creating an Office of Healthcare Accountability to analyze healthcare costs for city employees, publish information about hospital costs on its website, and make recommendations regarding healthcare and hospital costs. And in October 2023, the Los Angeles County Board of Supervisors passed a motion aimed at reducing medical debt by requiring data collection on hospitals’ financial assistance and debt activities as well as launching a medical debt elimination program and identifying additional best practices and policies to reduce medical debt.
• Expand local health care and coverage programs. For decades, county governments and community partners have been developing programs to expand insurance coverage and access to care among the uninsured, often focusing on specific populations such as children or undocumented immigrants. Through the medical home model implemented in New York City, Los Angeles, Harris County, and elsewhere, residents who do not qualify for other public insurance programs access comprehensive, continuous, quality, affordable primary care. San Francisco, for example, pioneered universal access to health care at the local level when it launched its Healthy San Francisco program in 2007, providing basic health care services primarily through a network of community clinics to all uninsured residents regardless of immigration status. Paid for by a mix of public funds, contributions from for-profit employers with 20 or more employees, and participant fees based on a sliding scale, the program is available to adult residents who do not qualify for public insurance and whose incomes are below 500 percent of the federal poverty level. As of June 2022, there were 18,238 participants in the program, half of whom lived below the poverty line, and 75 percent of whom were Spanish speakers.

Acknowledgements

This brief was researched and written by Demetria Murphy of Estolano Advisors, with contributions to the final draft by Sarah Treuhaft of the Institute on Race, Power and Political Economy. We thank Alison Sesso and Keith Hearle of Undue Medical Debt for their thoughtful review and feedback.