New Jersey Forgives Medical Debt to 50,000 Residents Thanks to Inequitable Partnership

New Jersey has paid off $100 million in medical debt for about 50,000 of its residents using federal pandemic relief funds and working with a nonprofit that buys debt from hospitals or on the secondary market for pennies.

In announcing the partnership with Undue Medical Debt, formerly known as RIP Medical Debt, Democratic Gov. Phil Murphy on Tuesday noted how this type of debt can accumulate quickly amid “tragic accidents or devastating diagnoses” and follow a person for decades.

“When someone is sick or injured, they should be able to focus on what matters most — getting well — rather than worrying about how they will pay for the life-saving care and services provided to them,” he said in a statement.

The concept of buying out unpaid medical debts just to get rid of them is not up-to-date, although it gained popularity when The COVID-19 pandemic has reached its peak and families were drowning in debt.

Undue has become a leader in the movement, working with major donors, church groups and self-identified “gutter-pagan, mostly queer scumbags” in Philadelphia. The groups commit to raising a certain amount of funds, and Undue acts as a middleman, seeking out medical debt available for purchase directly from hospital systems or on secondary market at a fraction of the price. Unlike debt collectors who try to collect unpaid debts, sometimes through wage garnishment and legal proceedings, Undue discharges them at no cost to beneficiaries.

» READ MORE: A group of Philadelphia residents have forgiven $1.6 million in local medical debt. They celebrated with an unofficial debt burning.

Under President Joe Biden this The American Rescue Plan Act was meant to provide economic stimulus during the pandemic and lend a hand contain the spread of the virus. Local governments have also used the funds, which must be completed by the end of the yearfor purchase and debt cancellation. Counties and cities, including New Orleans AND Pittsburgh, planned to operate federal funds to purchase medical debt.

States, including Connecticut AND Arizonaare the latest government entities to tap federal pandemic relief funds to provide medical debt relief. (Pennsylvania has allocated $1 million in the last budget for medical debt relief using state funds.)

New Jersey used $550,000 from the American Rescue Plan to partner with Undue. Undue then brokered a $61.6 million debt purchase from Prime Healthcare, the nation’s fifth-largest for-profit health system, which operates dozens of hospitals in 14 states. That purchase helped nearly 18,000 New Jerseyans.

Federal funds also helped buy $38.4 million in secondary market debt, which in turn is expected to lend a hand nearly 32,000 Garden State residents. For some, the effort will provide partial relief, but others could see all of their debt wiped out.

Residents didn’t have to do anything to qualify. Undue selects people based on their income level and debt ratio. Beneficiaries in New Jersey live four times or below the poverty line or have debt that is 5% or more of their annual income.

How effective debt relief is remains a matter of debate. Study published this year by a group of economists found that, on average, people who had their debts removed did not report an improvement in their mental health, finances, or credit scores. Undue said it has received reports of the opposite. Meanwhile, other health care advocates emphasize that removing debt is not enough to fix a broken system in which seeking life-saving care can lead to crippling debt.

New Jersey is not focused solely on debt relief.

Last month, Murphy signed Louisa Carman Medical Debt Relief Act, which prohibits a creditor or collector of medical debt from reporting the amount to a credit reporting agency, charging interest higher than 3% on medical debts, or garnishing the wages of individuals whose annual income is below a certain level.

The Murphy administration is focused on “immediate and direct relief while also changing policy to provide systemic and lasting change and protections,” Shabnam Salih, director of the Office of Health Care Affordability and Transparency, said in a statement.

Envelopes marked “Unauthorized” began reaching beneficiaries on Monday, according to the Murphy administration.