Yahoo News L.A. County plans to put $5 million toward wiping out medical debt
Los Angeles County is moving forward with a pilot program to relieve medical debt for struggling residents, setting aside $5 million for a planned agreement with a national nonprofit that buys and erases such debts.
County supervisors voted Tuesday to allocate money for a county agreement with Undue Medical Debt to carry out the new program. The effort is expected to launch later this year, focusing on debt stemming from hospital care and targeting L.A. County's "lowest income residents."
“No one should be driven into poverty because they got sick," Supervisor Janice Hahn, who put forward the proposal with Supervisor Holly Mitchell, said in a statement.
"But medical debt remains a huge problem in this country, and it can be devastating for families and their financial well-being. Luckily for us, we have an opportunity to make a difference."
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Hospitals stuck with unpaid bills can bundle and sell the debt at a discount to collection agencies that try to recoup the owed money for profit. Undue Medical Debt instead buys the discounted debt and forgives it. The nonprofit said it can erase an average of $100 in debt for every dollar that is donated.
"Five million dollars can really go a long way," said its vice president of communications and marketing Daniel Lempert. County officials estimated that amount could eliminate $500 million of debt for 150,000 residents.
Across the country, Undue Medical Debt has partnered with local governments such as Cook County, Ill. and Toledo, Ohio. to fund such efforts. Lempert said that under such agreements, the nonprofit typically reaches out to local hospitals and other health care providers to identify and purchase medical debt affecting financially strapped patients, then gets reimbursed by the local government for the cost of debts affecting their residents.
Under its guidelines for financial hardship, Undue Medical Debt works to relieve debt for people from households making no more than four times the federal poverty level — a calculation equating to $124,800 this year for a family of four — or whose medical debt amounts to 5% or more of their income.
L.A. County is still working out who will be eligible under its pilot program, but its broad goal is to reach "our lowest-income residents and the working poor who have catastrophic amounts of medical debt," said Dr. Naman Shah, director of the division of medical and dental affairs at L.A. County Public Health.
The L.A. County pilot program will focus specifically on medical debts for hospital care, Shah said. Local residents cannot apply directly for their medical debt to be wiped out, but will be informed if Undue Medical Debt has eliminated some or all of their unpaid debt.
"You'll get a letter out of the blue saying, 'X, Y or Z debts have been relieved. You no longer owe them. Keep this as a receipt,'" Lempert said.
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In Los Angeles County, public health officials have estimated that medical debt totaled more than $2.9 billion in 2022, burdening 1 in 10 adults in the county — a higher percentage than suffered from asthma, according to the public health department. More than half of those who said they were burdened by medical debt had taken on credit card debt to pay medical bills, its analysis found.
The problem has persisted even as more L.A. County residents gained insurance coverage, underscoring the need for a targeted approach, the public health department said.
County officials estimated earlier this year that wiping out nearly $3 billion in medical debt for L.A. County residents through an intermediary would cost $24 million. Other municipalities have turned to funding from the American Rescue Plan Act for such debt relief, but L.A. County had "fully allocated" that money as of January, according to a staff report.
The public health department said it planned to instead use $5 million in one-time county funding for the pilot program, which it said would roll out in stages, starting with "the most vulnerable residents." Shah said his hope was to raise enough additional money to not have to set priorities about which struggling residents to help.
A study released earlier this year raised questions about the effectiveness of buying up medical debt: A National Bureau of Economic Research working paper that examined medical debt relief for more than 83,000 people from 2018 to 2020 concluded it had no effect, on average, on financial distress or mental health. The research was done in partnership with Undue Medical Debt, then known as RIP Medical Debt.
Despite the "disappointing results," the researchers wrote, "there is still potential that medical debt relief targeted further upstream or in different populations could yield meaningful benefits." Stanford University professor of economics Neale Mahoney said the cheapest debts to buy often date back five years or more.
By that point, "a lot of these folks had a lot of other issues, and relieving one of their issues without helping ... all of the other financial issues they had wasn't enough to move the needle," he said. One solution is to "move more upstream," and provide debt relief earlier, "before people are too scarred by the debt collection process."
Mahoney praised the response of the nonprofit, saying it was "taking the study to heart." Undue Medical Debt president Allison Sesso said in April that it had already made changes since the period covered by the study, including buying medical debt directly from hospitals before it goes to debt buyers or collection agencies.
Sesso also said her group was "collaborating with local governments across the country to concentrate debt erasure to a specific locality to deepen our impact."
Focusing such efforts in a targeted area ramps up the chances it may be able to wipe out multiple debts for an individual patient, Lempert said.
Shah added that the study did not show what would happen if debt relief happened alongside other prevention efforts. In L.A. County, "there is a larger agenda on medical debt — of which this is just one part."
Under a broader plan to combat medical debt in L.A. County, the public health department also wants to gather data on how hospitals collect debt and assist strapped patients, create an online portal to apply for financial help, and expand legal aid services, among other proposed steps.
Public health department director Barbara Ferrer told county supervisors Tuesday that their goal is to stop medical debt "at the source," before it starts piling up for L.A. County residents.
"We don't want to be coming back to you in five years trying to pay off medical debt again," Ferrer said.
This story originally appeared in Los Angeles Times.
