Billions in Arizonans’ medical debt to be erased
Arizona Governor Katie Hobbs announced the state will be wiping out medical bills for up to one million residents.
Fox – 10 Phoenix
PROVIDENCE – As state lawmakers begin debating ways to relieve Rhode Islanders of the weight of their medical debts, Troy Peck of Cranston came to the State House this week to spell out what can happen to a family when their 1-year-old is diagnosed with a rare form of cancer.
Rounds of chemotherapy. A bone marrow transplant. A post-transplant recurrence. An experimental drug. While the bubbly Aspen has been in remission for two years, Peck told the legislators, the financial battle that began with her diagnosis in January 2021 continues.
“Bills do not stop just because your child has cancer,” he said.
They still had a mortgage, student loan, utilities and car payments. And with neither parent working as they cared for Aspen in the hospital, he said they relied on charity to cover their basic expenses.
“When you finally come out of the other side of treatment, you should not have to worry about whether your house will be taken, your wages garnished, or your credit destroyed, which will further inhibit you from finding a new job, all from a debt that you have no control over,” he continued.
The total cost of Aspen’s care? As of Dec. 31, 2023: $1,056,789.
Two bills would address medical debt in different ways
Peck was testifying on a House bill to prohibit debt collectors from reporting medical debt to credit bureaus and ban the practice of attaching liens to a person’s home – and garnishing their wages – because of medical debt.
The hearing took place on the same day Senate Democrats unveiled their own health care package, including a proposal to use unspent COVID relief funds to buy the medical debt of financially struggling Rhode Islanders.
The buyout legislation – co-sponsored by Senators Mark McKenney and Ryan Pearson, the Senate majority leader – assumes that tens of millions of federal American Rescue Plan Act (ARPA) dollars are unspent, uncommitted and available.
If you ask Gov. Dan McKee’s office, these 2021 dollars are all spoken for, under rules where they must be “obligated” by the end of December 2024 and “fully expended” by December 2026.
But McKee’s office confirms mid-April plans to “reevaluate any projects at risk of not meeting these deadlines. At that time, the governor may propose reallocating those funds.”
How many Rhode Islanders might benefit from medical debt relief?
While that is not a commitment, it’s the scenario that Pearson is counting on to set Rhode Island down the same medical-debt-buying path as Connecticut, Arizona, New York City and Cook County, Illinois, with leftover dollars from the American Rescue Plan Act of 2021.
State officials have not yet pinpointed the number of Rhode Islanders who might benefit from the legislative efforts to relieve them of medical debts. The proposal would be limited to those with incomes up to 400% of the federal poverty line, which is $124,800 this year for a family of four.
But a new coalition of health care advocacy groups and unions culled numbers from the Consumer Financial Protection Bureau indicating that Rhode Islanders, on average, carry $1,300 in medical debt, a median of $513.
And the separate Commonwealth Fund “estimates that 5.1% of Rhode Islanders with medical debt are in collections … [and] people of color are 68% more likely to have medical debt in collections,” according to the new Protect Our Healthcare Coalition.
More: Hundreds of millions in federal pandemic money is still unspent in RI. What comes next?
The only notes of caution about prohibitions on liens and wage garnishment came from Kimberly Merolla-Brito, the director of the state’s Department of Human Services.
She warned the House Judiciary Committee that House bill [H7103] as written, would hinder the collection of child support by removing “an enforcement tool to ensure compliance of Family Court orders” and potentially eliminate $8 million each year in support from custodial parents, based on a systems analysis by the state’s office of child care support.
“This would result in a disproportionate burden on women and children relying on Family Court-ordered, medical debt payments from non-custodial parents,” she said.
How much medical debt could the state buy?
But that begs the question: How much is potentially available to wipe out medical debts?
Of the $1.13 billion that the state received in federal recovery dollars, roughly $660 million was unspent as of Dec. 31, 2023. The Pandemic Recovery Office in their FY 2024 second quarter progress report estimated that 22.5% of projects to which those dollars had been committed were “at risk” and, by extension, 19% of the unspent dollars.
Put another way: “Anything that we leave in the budget committed, we have to make sure that we believe it will be spent or we risk giving that money back to the feds,” Pearson said.
And, “there’s a significant amount of things that are at risk of not being able to be spent” by the federal deadline that the state could then use to buy unpaid medical bills from hospitals – and other medical debt collectors – at “pennies on the dollars,” he says.
He looks to what Arizona is doing as a benchmark. Arizona recently announced a plan to partner with the nonprofit RIP Medical Debt to buy $2 billion in unpaid bills from hospitals and other medical debt collectors.
Based on population alone – Arizona has seven times more people than Rhode Island – Pearson says his “back of the envelope” estimate pegs the potential one-time cost to the state at $4 million to $8 million. Whatever the number turns out to be, “there’s going to be a lot more available that might not be spent than what it would cost to purchase … medical debt.”
How would the medical debt forgiveness work?
As for how it would work, Pearson said the Rhode Island legislation was modeled after Connecticut’s own medical debt acquisition effort.
Here, the legislature would give the treasurer the authority to reach an agreement with “a qualified nonprofit” – such as RIP Medical Debt but not necessarily that one entity – to purchase “the medical debt of Rhode Island residents that have gone into collections and are being sold by the original or any subsequent creditor.”
More: RI’s health care system is ‘in critical condition.’ This bill package aims to stop the bleeding.
The nonprofit would be required to “contact local hospitals, hospital systems, and collection agencies that deal in and hold medical debt … purchase entire portfolios of medical debt owed by eligible individuals … [and] notify eligible individuals of the discharge of their debt, and the possible federal income tax implications that arise from discharge of indebtedness.”
There are no specified limits on how much the state might pay hospitals. Pearson said the amount the legislature appropriates for the debt buyout would limit how much is available for the buyouts and, by extension, how many people might benefit.
Pearson said the way it works now, “Debt collectors call you, right? They’ll send you letters … They’ll file it on your credit, and in the end the debt collection agency [that] paid 2 cents on the dollar … [is] going to try to collect more than 2 cents on the dollar. If they can do that, then that’s how they make money.”
Pearson said his own grandparents are going through some medical debt issues themselves right now.
“They’re both in their 80s,” he said. “And my grandfather got a bill for my grandmother this morning and said, ‘You know, Ryan, they can’t get blood out of a stone. By the time they get me, I’ll be in the grave.'”
“And that is the reality of what this debt is worth,” he continued. “So that’s why you can relieve a lot of Rhode Islanders of this debt” for pennies on the dollar.