LA County plans to invest $5 million to erase 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 deal with a national nonprofit that buys and erases those debts .

County supervisors voted Tuesday to allocate money to 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 resulting from hospital care and targeting the “lowest income residents” of Los Angeles County.

“No one should fall into poverty because they got sick,” Supervisor Janice Hahn, who introduced 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 to families and their financial well-being. Lucky for us, we have the opportunity to make a difference.

Hospitals struggling with unpaid bills can consolidate and sell the debt at a discount to collection agencies trying to recoup the money owed for profit. Rather, improper medical debt purchases the discounted debt and cancels it. The nonprofit said it can wipe out an average of $100 in debt for every dollar 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 in debt for 150,000 residents.

Across the country, Undue Medical Debt has partnered with local governments such as Cook County, Illinois, 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 repurchase medical debt affecting financially distressed patients, then is reimbursed by the local government for the cost of debts affecting their residents.

Under its financial hardship guidelines, Undue Medical Debt works to provide debt relief for people from households with incomes no more than four times the federal poverty level – a calculation equivalent to $124,800 this year for a family of four – or whose medical debt represents 5% or more of their income.

Los Angeles County is still determining who will be eligible for its pilot program, but its overall goal is to reach “our lowest-income residents and the working poor who have catastrophic medical debt,” said the Dr. Naman Shah, Director of the Medical and Dental Affairs Division of LA County Public Health.

Los Angeles County’s pilot program will focus specifically on medical debt related to hospital care, Shah said. Local residents cannot directly request that their medical debts be erased, but will be notified if the Undue Medical Debt program has eliminated some or all of their outstanding debts.

“You will receive a letter out of the blue saying: ‘Debts X, Y or Z have been relieved.’ You don’t owe them anymore. Keep this as received,” Lempert said.

In Los Angeles County, public health officials estimated that medical debt would rise to more than $2.9 billion in 2022, burdening 1 in 10 adults in the county — a higher percentage than that suffering from asthma, according to the public health department. According to the analysis, more than half of those who reported being burdened by medical debt had taken on credit card debt to pay their medical bills.

The problem persisted even as more Los Angeles County residents gained insurance coverage, highlighting 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 Los Angeles County residents through an intermediary would cost $24 million. Other municipalities have turned to American Rescue Plan Act funding for such debt relief, but Los Angeles County had “fully allocated” that money by January, according to a staff report.

The public health department said it plans to instead use $5 million in one-time county funding for the pilot program, which it said would happen in stages, starting with “the most vulnerable residents “. Shah said his hope is to raise enough additional money so he doesn’t have to prioritize which struggling residents to help.

A study released earlier this year raised questions about the effectiveness of medical debt redemption: 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 it had no effect, on average, on finances. 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 write, “it is still possible that medical debt relief targeted further upstream or across different populations could produce significant benefits.” Neale Mahoney, an economics professor at Stanford University, said the cheapest debts to buy are often five years or more old.

At this point, “a lot of these people had a lot of other problems, and solving one of their problems without helping them… all the other financial problems they had wasn’t enough to make things happen,” he said. he declared. One solution is to “move further upstream” and provide debt relief earlier, “before people are too scarred by the debt recovery process.”

Mahoney praised the nonprofit’s response, saying it was “taking the study to heart.” Undue Medical Debt President Allison Sesso said in April that she had already made changes since the period covered by the study, including purchasing medical debt directly from hospitals before it goes to hospitals. debt buyers or collection agencies.

Sesso also said his group is “collaborating with local governments across the country to focus debt forgiveness on a specific locality to deepen our impact.”

Focusing these efforts on a targeted area increases the chances of being able to erase an individual patient’s multiple debts, Lempert said.

Shah added that the study did not show what would happen if debt relief was accompanied by other prevention efforts. In Los Angeles County, “there is a broader medical debt program – of which this is only one part.”

As part of a broader plan to combat medical debt in Los Angeles County, the public health department also wants to collect data on how hospitals are collecting debts and helping patients who are short of money. money, create an online portal to apply for financial aid and expand legal aid services, among other proposals. not.

Department of Public Health Director Barbara Ferrer told county supervisors Tuesday that their goal is to stop medical debt “at the source,” before it starts piling up for County residents. Los Angeles.

“We don’t want to come back to you in five years to try to pay off our medical debts again,” Ferrer said.

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