Arizona Gov. Katie Hobbs plans to erase up to $2 billion in medical debt for residents by using federal coronavirus relief funds.
“In partnership with RIP Medical Debt, I am launching a program to cancel medical debt for up to one million Arizonans, freeing working families from financial hardship brought onto them through no fault of their own,” the governor announced during a press conference on Monday.
In March 2021, President Joe Biden signed the American Rescue Plan Act (ARPA) into law to help Americans recover from the economic crisis of the coronavirus pandemic. The democrat governor plans to apply $30 million in ARPA funds to buy and cancel medical debt through a contract with RIP Medical Debt, a national nonprofit organization.
The Manhattan-based nonprofit buys debt in “bundles, millions of dollars at a time for a fraction of the cost,” according to its website. Its mission is to strengthen communities by abolishing financially burdensome medical debt.
“The debt can sometimes be purchased for pennies on the dollar, meaning that $30 million could erase $1.5 billion to $2 billion in debt” over the next two years, according to Jeff Smedsrud, a board member with RIP Medical Debt.
Eligible Arizona residents include those who make less than 400 percent of the federal poverty level and those whose medical debt equals 5 percent or more of their annual income. The debt will be bought back from hospitals, healthcare providers, and debt collectors, according to officials. The debtor’s score will also be automatically adjusted.
In addition to income criteria, the nonprofit randomly selects eligible recipients, according to Mr. Smedsrud.
“We don’t pick elderly people versus younger people; people of color versus not. We send out a notice to everybody in that database that qualifies,” he said.
The contract signed by the governor’s office with the non-profit organization is the largest medical debt relief effort by a state in history, according to a statement by the governor’s office.
“I take seriously my duty to protect vulnerable Arizonans from falling into medical debt, and make healthcare more affordable. I am proud to deliver this relief for Arizonans, and am grateful to the partners who have helped make this happen,” the governor said.
Ms. Hobbs faced questions about the legality of the partnership between the state and RIP Medical Debt and whether the new program directly violates a provision in the state Constitution. The Gift Clause prohibits the state government from donating any money to individuals or businesses.
“I can assure you we would not be taking this action if we weren’t fully confident in the legality of it,” she said.
An analysis of U.S. census data by the Kaiser Family Foundation published in February 2024 shows at least one in 12 adults owes some medical debt. The data suggests Americans owe at least $220 billion in medical debt despite more than 90 percent of the population having some form of medical insurance.
