Los Angeles County is moving forward with a pilot program to alleviate medical debt for struggling residents, setting aside $5 million for a contract with a national nonprofit that will buy and write off the debt.
County supervisors voted Tuesday to allocate funds to a county compact with unjust medical debtors to implement the new program. The effort is expected to begin later this year and will focus on debts arising from hospital care and target the “lowest-income residents” of Los Angeles County.
“No one should be forced into poverty because they become ill,” Director Janice Hahn, who submitted the proposal with Director Holly Mitchell, said in a statement.
“But medical debt remains a huge problem in this country and can be devastating to families and their financial well-being. The good news is, we have an opportunity to make a difference.”
Hospitals with unpaid bills can consolidate their debts and sell them at a discount to debt collection agencies that try to collect on them for a profit. Undue Medical Debt instead buys the discounted debt and forgives it. The nonprofit says it can wipe out an average of $100 in debt for every dollar donated.
“$5 million goes a long way,” said Daniel Lempert, the county’s vice president of communications and marketing. County officials estimate the amount would eliminate $500 million in debt for 150,000 residents.
Across the country, Undue Medical Debt has partnered with local governments, including Cook County, Illinois, and Toledo, Ohio, to fund such efforts. Lempert said in these arrangements, the nonprofit typically approaches local hospitals and other health care providers to identify and purchase medical debt for financially struggling patients, then gets reimbursed for residents’ debt costs by the local government.
The Undeserved Medical Debt Relief Program works to provide debt relief to people who earn less than four times the federal poverty level (that’s $124,800 this year for a family of four) or whose medical debt is more than 5 percent of their income, subject to financial hardship guidelines.
Los Angeles County is still determining who will be eligible for the pilot program, but the broad goal is to reach “the lowest-income residents and working poor who have significant medical debt,” said Dr. Naman Shah, medical and dental director for the Los Angeles County Department of Public Health.
The Los Angeles County pilot program will focus specifically on medical debt incurred for hospital care, Shah said. Local residents cannot directly apply for medical debt forgiveness, but will be notified if Undue Medical Debt has forgiven some or all of their outstanding debt.
“All of a sudden you’ll get a letter saying, ‘Your debts X, Y and Z have been forgiven. You no longer have to pay them. Keep this as your receipt,'” Lempert says.
In Los Angeles County, public health officials estimate that total medical debt will exceed $2.9 billion in 2022, affecting one in 10 adults in the county. That’s a higher percentage than the percentage of people with asthma, according to the public health department. More than half of those who said they were struggling with medical debt had taken out credit card debt to pay for medical bills, the analysis found.
The problem hasn’t been resolved even as more Los Angeles County residents have become insured, underscoring the need for a targeted approach, Public Health said.
County officials estimated earlier this year that it would cost $24 million to use intermediaries to wipe out about $3 billion in medical debt owed to Los Angeles County residents. While other municipalities have turned to American Rescue Plan Act funds for such debt relief, Los Angeles County had “fully allocated” the funds as of January, according to a staff report.
The health department said it would instead use a one-time grant of $5 million from the county to fund the pilot program, which would be rolled out in stages, starting with the “most vulnerable residents.” Shah said he hopes to raise enough additional funding so they don’t have to prioritize which residents in need are helped.
A study published earlier this year cast doubt on the effectiveness of medical debt buyouts. A National Bureau of Economic Research working paper that examined medical debt relief for more than 83,000 people from 2018 to 2020 concluded that, on average, medical debt relief had no effect on financial distress or mental health. The study was conducted in collaboration with Undue Medical Debt, then known as RIP Medical Debt.
Despite their “disappointing results,” the researchers wrote, “it is still possible that medical debt relief targeted more upstream or at different populations could produce meaningful benefits.” Neil Mahoney, an economics professor at Stanford University, said the cheapest debt to buy is often debt that’s more than five years old.
At that point, “a lot of these people had a lot of other problems, and alleviating one of their problems just to help with all the other financial problems they had wasn’t enough to change their situation,” he said.One solution is to “go further upstream” and offer debt relief earlier, “before people get too hurt by the debt collection process.”
Mahoney praised the nonprofit’s response and said the group “is taking the investigation seriously.” Unfair Medical Debt president Allison Sesso said in April that her group had already made changes since the investigation began, such as buying medical debt directly from hospitals before it goes to creditors or collection agencies.
Sesso also said the group would “work with local governments across the country to focus debt relief in certain areas to strengthen the impact.”
Lempert said focusing such efforts in specific areas would increase the chances of wiping out heavy debt for individual patients.
Shah added that the study doesn’t show what would happen if debt relief was done in tandem with other preventative measures. “There’s a much larger challenge with medical debt in Los Angeles County, and this is just one part of it.”
As part of a broader plan to combat medical debt in Los Angeles County, the public health department also is proposing measures such as collecting data on how hospitals are collecting debts and helping cash-strapped patients, creating an online portal for applying for financial assistance and expanding legal aid services.
Public Health Director Barbara Ferrer told county supervisors on Tuesday that the goal is to stop the health care burden “at the source” before it starts to balloon for Los Angeles County residents.
“I don’t want to come back to you in five years to pay off medical debt again,” Ferrer said.