Connecticut says it will become first state to cancel medical debt for many residents

By Tami Luhby, CNN

(CNN) — Connecticut will cancel roughly $650 million in medical debt for an estimated 250,000 residents this year, Gov. Ned Lamont announced Friday, saying it is the first state to provide this type of relief.

The effort will liberate many residents from “the cloud” over their heads and give them more freedom to buy a home, start a business or continue with their education, Lamont told CNN. That will help them strengthen their financial standing in a state with a large wealth gap.

“It’s a debt that you had no control over,” Lamont told CNN. “It’s not like you overspent. You get hit by a health care calamity.”

Residents whose medical debt equals 5% or more of their annual income or whose household income is up to 400% of the federal poverty line, or about $125,000 in 2024, are eligible.

Those who qualify do not need to apply – they will receive letters in the mail saying their debt has been eliminated as soon as this summer. More than 1 in 10 Connecticut residents have medical debt in collections.

Lamont first announced the initiative, which was included in Connecticut’s most recent budget, on ABC’s “Good Morning America” on Friday.

The state will leverage $6.5 million in Covid-19 funds from the 2021 American Rescue Plan Act to satisfy the debt. It will contract with a nonprofit group that buys medical debt from hospitals and eliminates it for much less than what’s owed.

Connecticut joins a growing number of governments that are wiping out residents’ unpaid medical bills. New Jersey included $10 million in its most recent budget to fund a pilot program to cancel residents’ medical debt, and Gov. Phil Murphy last month called on the state Legislature to expand the effort in the coming budget.

“For every dollar invested, we can retire up to $100 in debt – for tens of thousands of people,” Murphy said in his State of the State address.

New York City last month said it would eliminate more than $2 billion in medical debt for up to 500,000 residents over the next three years.

Many governments are working with RIP Medical Debt, a nonprofit founded in 2014. It can often buy debt directly from hospitals and other health care providers for a penny on the dollar, mimicking the deals that for-profit debt collectors are able to strike, said Allison Sesso, CEO of the charity. It has signed contracts or is working with about 30 governments, including cities, counties and states – many of which are using American Rescue Plan Act funds to pay for the initiatives.

However, she noted, the efforts can’t guarantee that all of a person’s medical debt will be canceled.

Helping patients contend with medical debt is in the spotlight as Americans deal with the high cost of health care. The exact amount owed is difficult to pin down, but a KFF analysis of 2020 Census Bureau data found that US adults carry at least $195 billion in medical debt.

Nearly 1 in 10 American adults have medical debt of over $250, with Black Americans and middle-aged residents more likely to be in this situation, according to KFF. A separate analysis last year by Third Way, a center-left think tank, found that the middle class is the hardest hit by unpaid health care bills.

Medical debt is now the largest source of debt in collections, totaling more than credit cards, utilities and auto loans combined, according to the White House.

The three largest credit reporting agencies announced in 2022 that they would remove nearly 70% of medical debt from consumer credit reports. And the Consumer Financial Protection Bureau and the Biden administration are also considering ways to minimize the burden of medical debt.

This headline and story have been updated with additional information.

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