D.C. wants to cancel $90 million in medical debt. Here's how it would work.

D.C. Mayor Muriel Bowser announced a $900,000 plan to purchase and cancel medical debts incurred at D.C. hospitals as part of her 2024 budget proposals, which could result in erasing up to $90 million of medical debt for D.C. residents.

The D.C. Council is set to finalize the budget Tuesday, ahead of the beginning of the fiscal year in October and while the city says the details of the initiative are still being ironed out, it would make D.C. one of the largest municipal bodies to do so. Across the U.S., almost one in 10 adults, or 23 million people, are in significant healthcare debt.

It's part of a growing trend in jurisdictions across the country, including counties in Ohio and Illinois, where local governments partner with a third-party debt purchaser to buy off money owed to hospitals at a discount. Then, instead of pressing borrowers to pay the money back as a debt collector would, they're simply canceling it.

Nationwide, people's medical debt has contributed to bankruptcy filings, evictions, and foreclosures. And while changes have been made in recent years to reduce the impact of medical bills on credit reports, debt can hamper a person's ability to buy a house or enroll in higher education. Debt is also associated with a higher prevalence of anxiety and depression and can ultimately lead to worse health outcomes when people avoid care for fear of racking up debt. In 2022, a Gallup poll found that 38 percent of Americans postponed medical treatment because of the cost.

"For so many, medical debt is not optional," says Ariel Levinson-Waldman, the executive director Tzedek DC, a local nonprofit advocating for the rights and protection of residents in debt. "Medical debt is a result of your health and that's not something we all control."

In D.C., the burden falls the hardest on Black residents, who are three times more likely than white residents to have medical debt. It's also more likely to impact residents with disabilities or chronic health conditions who may not have the option of delaying or forgoing care.

While D.C.'s plan is in the early stages, here's what to know:

Who is eligible?

According to the office of the Deputy Mayor for Healthcare Finance, households making less than or equal to four times the federal poverty level of $14,580 (for an individual) or who have medical debt that amounts to at least 5% of the household income, will be automatically eligible. (For example, if a family of four is earning less than $120,000 members are eligible.)

There is no application or enrollment process. Once the debt is bought and canceled, people should expect a notification of the cancellation.

How does buying and canceling medical debt work?

D.C. will be using $900,000 in surplus funding that was specifically set aside for health equity in 2022 to cancel the debt.

The city itself won't be buying the debt, but instead working with a third party organization which will receive the $900,000 as they would a grant from the city which they would then use to buy the debt at a discount – one penny to the dollar. Thus, the $900,000 grant becomes $90 million in erased debt.

According to a spokesperson for the Mayor's office of Healthcare Finance, the city has not formalized an agreement with the "grantee," but it's likely that it will be RIP Medical Debt, an organization that's been doing the same thing in other cities. Cook County, Illinois, and Lucas County, Ohio have both partnered with the nonprofit charity organization to erase a total of $240 million in medical debt. Pittsburgh and New Orleans are also looking at similar initiatives. In addition to working with local governments, the nonprofit also accepts donations from anyone. So far, they've relieved more than $8.5 billion dollars in medical debt.

Once the contract is finalized with the city, RIP Medical Debt would then work out contracts with individual hospitals in order to purchase the debt. It's in the hospital's interest to agree, says Levinson-Walden, because they'd at least receive guaranteed income on the outstanding payments, as opposed to the debt ending up in the hands of a collections agency where it may remain largely unpaid.

"The hospitals don't get a largess, but they get a penny, which is some predictable income relative to what would probably be the zero amount they would normally get," he says. "In a time of extraordinary stress for hospitals, it's not a bad thing."

What about medical debt not incurred at a hospital?

Bills resulting from visits to urgent care or specialists that are not within a hospital system won't be included in the erasure.

Has D.C. done anything else to relieve the burden of medical debt?

In recent years, Tzedek D.C. has advocated for debt collection reforms, which won't relieve debt but can protect people from unfair debt collection practices.

In January of this year, new legislationwent into effect increasing oversight of debt collection agencies and debt buyers. The legislation limits the number of calls collections agencies can make within a week, and requires debt collectors to inform consumers in writing if they have funds that are protected from being taken by collectors. The bill also brought medical debt under the categories of debt that afford these protections, making most forms of debt in D.C. protected.

This feels like a band-aid to a bigger problem...right?

Advocates for debt relief say that purchasing and erasing debt is an immediate step toward relief in the face of the United States' unjust and outrageously expensive healthcare system, but that it's up to hospitals, D.C. officials, and Congress to enact meaningful, longer-term change.

"We hope that the District will also look, or is also looking, at addressing the structural conditions that are producing this level of medical debt in the first place," says Lindsey Muniak of the Debt Collective, a debtors' union. "It's important to look at why medical debt is accumulating at this rate, and try to create a situation that ensures that the District won't have to do the same sort of thing another year from now, and another year from then, and another year from then."

A shift in the way people think or talk about debt is also necessary, Muniak says. Even the language around debt, such as words like "forgiveness," places the onus and responsibility on the person seeking the medical care instead of the institution. Some hospital systems are required to offer charity care (free treatment or financial assistance) to low-income patients in exchange for government subsidies. This doesn't always happen, leaving patients who shouldn't have been required to pay for care saddled with debt.

"A lot of people right now don't learn that they're eligible for charity care, and they then go into the billing process at the hospital and get a big bill later," Levinson-Waldman says. "That might be sitting right now on the books at a Medstar, at a United Medical Center, at Howard... when if the disclosure process had gone right, if it was in big font, if an administrative assistant or nursing professional had pointed out to them on the front end, and the hospital invested resources to let people know about their eligibility, all of this could have been avoided."