New York joins local governments in erasing billions in medical debt

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New York City pledged last week to pay down $2 billion worth of residents’ medical debt. In doing so, it has come around to an innovation, started in the Midwest, that’s ridding millions of Americans of health care debt.

The idea of local government erasing debt emerged a couple of years ago in Cook County, Illinois, home to Chicago. Toni Preckwinkle, president of the county board of commissioners, says two staffers came to her with a bold proposal: The county could spend a portion of its federal pandemic rescue funds to ease a serious burden on its residents.

In 2022, Cook County became the first local government to partner with RIP Medical Debt, a nonprofit group that uses private donor funds to buy up and forgive patient debt.

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RIP’s model turns debt collection on its head. Normally, debt collectors buy unpaid bills and then try to collect the money owed. RIP identifies unpaid hospital bills owed by people making up to four times the federal poverty level, then buys that debt on secondary markets or directly from hospitals at a small fraction of the original value. Instead of trying to collect, RIP forgives it—so it simply disappears for the patients.

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In the Chicago area, as across the country, medical debt is an ongoing problem, causing mental and financial strain that can follow patients for years. An estimated 100 million people in the U.S. carry some form of health care debt, KFF Health News and NPR reported in 2022.

Preckwinkle said the RIP model dovetailed nicely with Cook County’s health care mission. For nearly two centuries, the county has funded its own hospital and health system, Cook County Health, in part to provide care to all residents, regardless of income.

“We have a legacy commitment to delivering quality health care to people without regard to their ability to pay,” Preckwinkle said.

She said that health care mission eats up nearly half of the county’s $9.3 billion annual budget. It is now in the process of spending $12 million—a tiny portion of its budget—to retire $1 billion worth of hospital bills for residents.

Since Cook County announced its program, seven other local governments have followed suit, including Ohio cities Akron, Cleveland, and Toledo; New Orleans; Wayne County, Michigan; Washington, D.C.; and now New York City, which announced its commitment Jan. 22.

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During his announcement, New York Mayor Eric Adams noted that medical debt disproportionately affects Black and Hispanic people, who are more likely to be uninsured or underinsured. For the city’s low-income residents, he said, “taking on medical debt isn’t a choice.”

“Working-class families often have to choose between paying their medical bills or some of the basic essentials that they need to go through life,” he said.

RIP is in talks with 30 other municipalities and states, including Connecticut, New Jersey, and Michigan.

Typically, RIP can retire at least $100 worth of debt for every $1 of government funds, so the local initiatives could end up wiping out several billion dollars in medical debt. The software selects eligible patients who remain anonymous, so it’s hard to know what the impact of eliminating that debt might be across a community, or for the families that benefit.

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Allison Sesso, CEO of RIP Medical Debt, acknowledged that debt is one of many factors contributing to unequal access to health care, and as hospital costs continue to rise, new debts are also piling up perhaps faster than her group can retire it. She said RIP hopes to retire $2.5 billion worth of unpaid medical bills through various government initiatives this year, but that’s a drop in the bucket of the $195 billion estimated medical debt held by Americans.

“I’m under no illusions,” Sesso said. “I don’t think what I’m doing is the solution to getting rid of medical debt, writ large.”

2024 KFF Health News. Distributed by Tribune Content Agency, LLC.