Two Communities Find a Cure for Medical Debt: Pandemic Recovery Funds

Local governments in Ohio and Illinois are using American Rescue Plan Act money to provide relief to residents struggling with medical debt by partnering with an organization that buys out debt and wipes the slate clean for the debtors.

It’s a strategy that proponents say could be replicated across the country to help solve a multi-billion dollar problem.

On Nov. 9, the Toledo, Ohio City Council passed a measure to erase medical debt for eligible residents using $800,000 allocated to the city through the American Rescue Plan Act (ARPA) , a federal law signed by President Joe Biden in March 2021 that aimed to help the country recover from the economic pain caused by the COVID-19 pandemic.

Lucas County commissioners, of which Toledo is a part, also announcement they would also contribute $800,000 in ARPA funds. The combined $1.6 million will go to RIP Medical Debt, a New York-based nonprofit, which buys medical debt from hospitals in batches at a price far below the actual debt, allowing the money to ‘go further. This means that $190-240 million of community member debt will be eliminated, according Michele Grim, member of the Toledo city council who defended the proposal. RIP Medical Debt only has an estimate at this time as the organization will not know the exact amount until they reach agreements with local hospitals.

Residents must earn a household income below four times the federal poverty level, which which goes 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 greater than 5% of their income to qualify.

Grim, a Democrat and newly elected member of the Ohio Statehouse, said she would consider bringing a similar proposal to the Legislative Assembly.

I would like to explore that in the House. Medical debt is a crisis for everyone and would help the economic recovery of many Ohioans,” she said in an email to States Newsroom.

“I’ve had several local governments seek to do the same thing,” Grim said. “Hopefully they can take the Toledo model and roll it out nationally. Washington DC doesn’t have a plan to eliminate medical debt, but Toledo, Ohio does.

Many Americans have medical debt, and it can take a toll 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 do not think they will ever be able to repay their debt.

The Consumer Financial Protection Bureau (CFPB) estimates the total amount of medical debt in the United States at $81 billion based on data from credit reporting agencies, but acknowledges that its total is likely an underestimate because “all medical debt in collection are not provided to consumer review companies”.

A Kaiser Family Foundation analysis of Census Bureau survey data on income and program participation put the total much higher — at $195 billion, including people who had more than $250 in debt. medical.

Medical debt is also more common in certain areas of the country, according to the CFPB, particularly in the South East and South West. For example, about 22% of Louisiana’s population has medical debt, compared to 2.25% in Minnesota, according to the CFPB report. A 2021 study which analyzed consumer credit reports from 2009 to 2020 found that medical debt was most prevalent in low-income communities in the South.

In some cases, medical bills have driven people out of business. A study published by the American Journal of Public Health in 2019 showed that 66.5% bankruptcies were either because a person’s illness affected his ability to work or because his medical care was exorbitant.

Grim said she was inspired to do something about medical debt after seeing what Cook County, Illinois had done to relieve its residents of medical debt. In July, Cook County Council unanimously approved expenses $12 million funds from ARPA to effectively get rid of $1 billion in medical debt. Grim said she modeled Toledo’s plan on Cook County’s.

Allison Sesso, president of RIP Medical Debt, said more local governments have reached out to the group to use ARPA funds to erase medical debt after learning about Toledo and Cook County’s efforts.

“I think it was sort of a no-brainer for anyone focused on health equity and recovery, post-COVID, on their communities to get rid of this burden of medical debt from people as quickly as possible. “, she said.

RIP Medical Debt was founded in 2014 by Craig Antico and Jerry Ashton, who are former debt collection managers. Sesso said the pandemic has brought renewed attention to medical debt and issues with the broader US healthcare system.

“Part of the equation when you think as a policy maker in terms of solving these problems for individuals is that we see an increase in the cost of living, all this inflation and all these other things that make more and more harder for families to make ends meet,” she said. “…It’s an American experience for you to go to a health care provider and think about how you’re going to fund those And even if you can put yourself on a payment plan and it doesn’t turn into debt, it still means you’re doing it at great cost.

Brady Chalmers, administrative analyst in the office of Cook County Council Chairman Toni Preckwinkle, said Preckwinkle took this approach because she wanted to focus on measures to reduce poverty and promote public health. RIP Medical Debt was the organization that seemed best positioned to implement this policy at the scale that Cook County needed. Chalmers added that one of the benefits of the action is knowing how high the money can go when it costs pennies on the dollar to buy the debt.

“A $12 million purchase of $1 billion in debt is a pretty good hit for taxpayers’ money,” he said.

Chalmers said it might make it a bit easier for people to advance economically.

“Hopefully they will get an improvement in their credit ratings and that will give them access to financial tools that they otherwise wouldn’t have,” he said. “We also want them to feel comfortable with the hospital system. We don’t want to live in a world where people have to choose between renting and going to the doctor when they need both because they have old debts. This allows us to free these people from this burden.

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