New Orleans aims to wipe out millions in medical debt

New Orleans is partnering with a nonprofit organization to wipe out millions in medical debt for eligible residents.

Why it matters: Americans owe debt collectors more medical debt than any other kind, Axios' Tina Reed reports.

• Medical debt is the leading cause of bankruptcy and can have detrimental impacts on patients' health — with its burden resulting in emotional and even physical harm.

Driving the news: Mayor LaToya Cantrell signed a partnership agreement this month with RIP Medical Debt, which buys medical debts from struggling people, then immediately forgives that debt.

• The New Orleans Health Department will oversee the program operations and monitor progress for the contract.

Threat level: About 22% of Louisianans have medical debt, according to a 2020 analysis by the Consumer Financial Protection Bureau.

• People of color are disproportionately affected, the analysis found.
• Individuals also don't seek additional care if they are already facing huge bills they can't pay, says Jennifer Avegno, the city's health director.

By the numbers: The city is using $1.3 million in American Rescue Plan Act funding to establish the program.

• RIP Medical Debt estimates it can cancel about $130 million in debt in New Orleans through the program, which runs through the end of 2025.
• The program could help an estimated 80,000 residents, leaders say.
• There is no application process.
• Debts should start being forgiven by the end of the calendar year, Jeanie Donovan, deputy director of the Health Department, tells Axios.

How it works: RIP Medical Debt is a national 501(c)(3) charity that negotiates with hospital systems to purchase portfolios of bad medical debt, which are already for sale on secondary markets.

• If a patient owes $10,000 but can't pay that bill, often the hospital will be willing to sell that debt for just $100 — one cent on the dollar — Axios' Felix Salmon reports.
• It only buys debt owed by people who earn less than four times poverty-level income, or who owe more than 5% of their annual income.

• Letters are then sent to recipients to alert them the debt has been forgiven.
• You can't do anything to apply to be part of the program, Donovan said. RIP Medical Debt negotiates directly with the hospitals.

Of note: Other places, including Cleveland, Cook Count, Illinois, and Washington, D.C., are doing similar forgiveness programs.

State of play: The Biden administration has acted to reduce the impact that medical debt has on patients, if not the medical debt itself or its underlying causes, according to our colleagues at Axios Pro.

• Millions of Americans carry medical debt and struggle to afford their health care costs, although the number of people in families having problems paying medical bills declined during the pandemic years.
• Health care affordability issues aren't limited to the uninsured, and a large percentage of people with health coverage struggle with medical bills as well.