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New Orleans plans to erase up to $130M in residents' medical debt

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The New Orleans City Council, following the footsteps of other local governments in Cook County, Illinois, and Toledo, Ohio, passed a last-minute line item in early December to the city’s 2023 budget: a $1.3 million expenditure that is earmarked to be used to erase more than $100 million in medical debt for city residents.

The city money will go to RIP Medical Debt, a New York-based nonprofit that buys outstanding debt from health care providers and collection agencies, typically for about a penny on the dollar. But instead of seeking profit, the organization sends out notices to consumers saying that their debt has been cleared.

City Council President Helena Moreno announced the idea days before the budget was passed on Dec. 1. The timeline for the New Orleans debt erasure to take effect is as yet unclear. Moreno’s office is working with the city’s health department to finalize a partnership with RIP Medical Debt. The city has yet to solidify a contract with the nonprofit, said Moreno’s chief of staff, Andrew Tuozzolo, but the goal is to come to an agreement in early 2023.

In working with RIP Medical Debt, Moreno hopes to use $1.3 million in federal American Rescue Plan Act dollars to eliminate $130 million worth of medical debt from New Orleanians. She said she is particularly committed to helping “communities of color who have been disproportionately impacted financially and medically by Covid-19.”

“This is a tremendous way to spend one-time federal dollars. … Being sick or injured shouldn’t put anyone in debt,” Moreno said in a statement.

Four out of 10 Americans currently carry medical debt, which can impact one’s financial and psychological well-being. Medical debt also can affect one’s physical health, as people who carry medical debt might avoid seeking additional medical care due to lack of funds.

New Orleans Health Director Jennifer Avegno, a medical doctor, said that medical debt also impacts access to quality care.

“About one in seven people with debt said they’ve been denied access to a hospital, doctor, or other providers because of unpaid bills,” Avegno said in a statement.

According to RIP Medical Debt’s website, the company uses “data analytics to pinpoint the debt of those most in need.” Financed by donations or partnerships, the organization purchases “bundles” of debt, “millions of dollars at a time at a fraction of the original cost” through their partnership with consumer credit reporting agency TransUnion. Those who have their medical debt forgiven do not face a tax consequence or penalty on their financial records. According to the RIP Medical Debt website, the forgiven debt is a charitable gift from a neutral third party, which is not considered taxable income.

To qualify for medical debt relief, the affected household must earn less than four times the federal poverty level or their debt is 5% or more of one’s annual income, according to RIP Medical Debt’s website. The poverty level annual income for a single adult in Louisiana currently is $13,590 and $27,750 for a family of four.

Avegno said that about 21% of people in Louisiana have medical debt, with an average amount of $824. (According to a February report by the Consumer Financial Protection Bureau, that number is closer to the median debt in the state. The average debt, the agency found, was $2,150.)

RIP Medical Debt has partnered with other local governments and medical providers nationwide to create medical debt relief initiatives by purchasing qualifying debts.

The city of Toledo, Ohio and the surrounding Lucas County, Ohio approved a proposal for medical debt relief through RIP Medical Debt in November. Each committed $800,000 in ARPA funds, totaling $1.6 million, to eliminate up to $240 million in debt. Earlier in the year, Cook County, Illinois, which includes the city of Chicago, invested $12 million in ARPA funds with “the potential to negotiate the purchase of up to $1 billion in medical debt for county residents,” in its partnership. Cook County officials told The New York Times that notices should start arriving in some residents’ mailboxes in January.

The nonprofit hopes to make an impact in the New Orleans community as well.

“We are very excited by the City of New Orleans' enthusiasm – and that of all local partners – to tackle the persisting problem of medical debt,” RIP Medical Debt President and CEO Allison Sesso said. “We’re committed to doing our due diligence to ensure our model is viable and set up for success.”

Moreno believes that New Orleans’ families can benefit from this relief.

“I hope this can provide relief and a financial reset for many families needing this boost,” Moreno said in her statement.

This article first appeared on Verite and is republished here under a Creative Commons license.

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