Two communities find a cure for medical debt: pandemic stimulus funds

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

It’s a strategy advocates say could be duplicated across the country to help erase a multibillion-dollar problem.

On Nov. 9, the city council in Toledo, Ohio, passed a measure to wipe out the medical debt of 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. 

Commissioners in Lucas County, of which Toledo is a part, also announced they would also contribute $800,000 in ARPA funds. The combined $1.6 million will go to RIP Medical Debt, a nonprofit based in New York, which 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 to Michele Grim, the Toledo City Council member who championed the proposal. RIP Medical Debt only has an estimate at this time because the organization won’t know the exact amount until it has reached deals with local hospitals.

Residents have to earn a household income of less than four times the federal poverty level, which ranges 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. 

Grim, a Democrat and newly elected member of the Ohio Statehouse, said that 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 aid in the economic recovery of many Ohioans, she said in an email to States Newsroom.

“I have had several local governments reach out looking to do the same thing. I hope they can take the Toledo model and make it nationwide. Washington DC doesn’t have a plan to eliminate medical debt but Toledo, [Ohio] does.”

Many Americans carry medical debt, and it can take a serious 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 don’t think they will 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 its total is likely understated as “not all medical debts in collections are furnished to consumer reporting companies.”

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, when including people who had more than $250 of 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 instance, about 22% of Louisiana’s population has medical debt compared to 2.25% in Minnesota, the CFPB report shows. A 2021 study that analyzed consumer credit reports from 2009 to 2020 found that medical debt was most prevalent in low-income communities in the South.

About 8.7% of Iowans in CFPB’s Consumer Credit Panel had medical debt in their credit file, with individuals owing an average of $1,880.

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

Grim said she was inspired to do something about medical debt after seeing what Cook County, Illinois, did to relieve its residents of their medical debt. In July, the Cook County Board unanimously approved spending $12 million of ARPA funds to effectively get rid of $1 billion in people’s medical debt. Grim said she modeled Toledo’s plan closely after Cook County’s. 

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

“I think it was sort of a no-brainer for anyone that’s focused on health equity and the recovery, post-COVID, on their communities, to get rid of this medical debt burden 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 collections executives. Sesso said the pandemic brought renewed attention on medical debt and problems with the U.S. healthcare system in general.

“Part of the equation when you’re thinking as a policymaker in terms of solving these problems for individuals is that we are seeing rising costs of living, all this inflation, and all these other things that are making it harder and harder for families to make ends meet,” she said. “ … It’s an American experience for you to go to a health care provider and be thinking about how you’re going to finance that healthcare. And even if you can get yourself on a payment plan and it doesn’t turn into debt, it still means that you’re doing it at great sacrifice.”

Brady Chalmers, an administrative analyst in the office of Cook County Board President Toni Preckwinkle, said Preckwinkle took this 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 Cook County needed. Chalmers added that one of the advantages of the action was how much further the money could go when it costs pennies on the dollar to buy the debt.

“Twelve million dollars buying a billion dollars worth of debt is a really good bang for the taxpayer dollar,” he said.

Chalmers said that this could make it a little bit easier for people to make economic progress. 

“Hopefully they get an improvement in their credit scores and that allows them access to financial tools that 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 are choosing between rent and going to the doctor when they need both because they have some old debt. This allows us to free these folks from that burden.”

Iowa Capital Dispatch is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: info@iowacapitaldispatch.com. Follow Iowa Capital Dispatch on Facebook and Twitter.