Gov. Ned Lamont recently announced a proposal that would eliminate medical debt for some of the state’s most vulnerable residents. The proposal would leverage federal relief funds and work with an organization that purchases outstanding medical debt at pennies on the dollar.
Already, a handful of municipalities – including Toledo and New Orleans – have launched plans to do this. After months of discussions about social justice initiatives, in 2020 the Southern New England Conference United Church of Christ purchased and retired $26.2 million in medical debt in their conference states, including Connecticut.
Should legislators agree, Connecticut would be the first state with such a broad-reaching program. To understand how revolutionary this could be, first we must wade through some numbers.
The Centers for Medicare & Medicaid Services says patients’ spending grew to $433.2 billion in 2021, or 10.4% over the previous year. Despite multiple state programs meant to ease the burden of medical bills, Connecticut residents too often slip into financial straits over their inability to pay for necessary medical care, which usually leads to more health issues. In fact, medical bills contribute to the vast majority of bankruptcies in the country, and 32% of Americans with medical debt say they will never be able to pay that debt off.
From a 2022 Henry J. Kaiser Family Foundation report, 100 million people have medical debt – or roughly 41% of all adults. A quarter of the people who owe medical debt owe more than $5,000.
Last year, an Altarum Healthcare Value Hub survey of Connecticut adults said that 55% of state residents faced some kind of challenge paying for healthcare, and 78% worried about being unable to pay for healthcare costs down the road.
That same survey said people with disabilities and people living in poverty often seek care only when medical issues have become serious, which demand more expensive treatments with predictable results. In fact, nearly half (46%) of respondents scrimped on or skipped some kind of medical care, including roughly a quarter of people who cut their medication in half in order to make it last – also with predictable results. This? Is not a healthcare system. It’s a free-for-all, with deadly outcomes.
Medical debt tends to land heaviest on Black and Latino families, according to the Census Bureau. From a Census Survey of Income and Program Participation survey, nearly 28% of Black households and nearly 22% of Latino households are saddled with medical debut, compared to 17.2% of white households.
In his budget address last week, Gov. Lamont said the plan could pay off as much as $2 billion in debt for Connecticut residents by using $20 million in federal American Rescue Plan funds and partnering with a non-profit organization that purchases medical debt for as little as pennies on the dollar. One such New York-based organization, RIP Medical Debt, was organized in 2014 by two former debt collectors who have since purchased – and forgiven – nearly $9 billion in medical debt – an astounding sum when you consider that some of those individual debts were as small as $500.
In conventional debt collecting, an organization purchases, say, medical debt at a percentage of its original amount – which allows a hospital to recoup at least some of their costs – and then that debt collector seeks to collect the full amount from the patient. With Lamont’s plan, the debt is purchased, and then erased. There is no attempt to collect money from the person who incurred the debt in the first place.
That’s an incredible return on a federal investment.
At a news conference in Hartford last week, Lamont said, “This is going to be liberating for tens of thousands of our residents, to give them a fresh start on life just like that operation gave them a fresh start in life.”
The state’s partner will work directly with hospitals, and there is no application process for people who owe medical debt.
Medical debt may be the next important focus for policies that relieve the financial burdens of vulnerable families. After a presidential executive order last April, credit reporting agencies recently agreed to remove medical debt from credit score reports, though the debt, of course, remains. Obviously, eliminating exorbitant medical costs in the first place is a wonderful goal, but for people about to be relieved of a crushing debt, this is an excellent start.