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Why two companies are paying off $225 million in medical debt for 176,000 people

Study: Med. bills largest source of U.S. debt
Study: Med. bills largest source of U.S. debt... 04:23

Health care company Nomi Health said on Tuesday it is teaming with charity RIP Medical Debt to pay off $225 million in overdue medical bills for 176,000 Americans. Those people will receive letters over the next few weeks alerting them to the debt forgiveness. 

The effort comes as medical debt has ballooned in the U.S., with overdue bills snowballing during the pandemic. Such indebtedness can wreak havoc on household finances, leading to garnished wages, liens on homes and cars, ruined credit, and personal bankruptcies. It also often leads to hassles with debt collectors, which buy overdue health care bills from hospitals and other institutions for pennies on the dollar, banking that they'll earn a profit if they can recoup even a fraction of the charges.

Nomi Health, which was founded in 2019 and runs COVID-19 testing sites in states including Utah and Florida, said it is spending $2 million to purchase the $225 million in medical debt, reflecting the deep discount that occurs after late bills are handed off to collectors. The 176,000 people who will have their medical debt paid off are located in four states — Colorado, Florida, Nebraska and Utah — and earn less than twice the poverty line, or about $53,000 or less annually for a family of four. 

"Seems like a no-brainer"

Overdue medical debt for Americans is "like $80 billion to $100 billion, but compared to $3 trillion of [health care] spending, it's nothing — we dismiss it," Nomi Health CEO Mark Newman told CBS MoneyWatch. "It's an enormous burden on our society, and we can get rid of it for $1 billion to $2 billion. It seems like a no-brainer."

RIP Medical Debt works by using donations to purchase medical debt for people who are most in need, such as those living at below 200% of the poverty line and whose debt represents at least 5% of their annual income. After buying the debt at discounted rates, the charity forgives it and then alerts the recipients via letter. 

Nomi's donation is the largest corporate gift for RIP Medical Debt since the charity was founded in 2014, the nonprofit organization said.

Medical debt is now the largest source of debt collections, according to a study published earlier this year in the Journal of the American Medical Association. It also found that while previous research had pegged the nation's medical debt at $81 billion, the problem is actually much larger today: Americans are now saddled with $140 billion in outstanding medical bills.

Man relieved of $1.7 mllion debt relief 06:08

Notably, Nomi is paying off the $225 million in medical debt in states where it operates. According to Politico, some policy experts have criticized the award of large state COVID-19 contracts to a relatively unknown startup. Newman said the decision to buy medical debt in those states reflects the company's commitment "to serving the communities we work in." 

He added, "In most cases they don't know who Nomi is because it says TestUtah or TestNebraska," rather than Nomi. 

On a per person basis, the amount of debt that is getting paid off is slightly more than $1,000 per person. But for households that are living paycheck to paycheck or struggling to meet their basic needs, that level of debt can still create significant challenges, Newman said.

Funding from Mackenzie Scott

While Nomi's donation to RIP Medical Debt is the largest corporate gift since the charity began, its biggest-ever donation came from Mackenzie Scott, the ex-wife of Amazon founder Jeff Bezos. Scott gave $50 million to RIP Medical Debt in December, part of her efforts to give away $4.2 billion to almost 400 charities at the end of 2020. 

Scott "sees the issue of medical debt being so problematic and deeply American," said RIP Medical Debt's executive director, Allison Sesso. "It is clearly a broken element of our health care financing system."

MacKenzie Scott announces sizable donations 01:23

Scott's gift was unrestricted, which means RIP Medical Debt can spend her money as it sees fit. Sesso said the funding is helping the charity pay off overdue health care bills for low-income Americans, as well as investing in data systems and other processes that will help its mission. 

RIP Medical Debt attracted national attention in 2016 when talk show host John Oliver bought $15 million of medical debt through the charity, wiping away overdue health bills for 9,000 people. 

176,000 letters: "You are relieved of the debt"

Nomi and RIP Medical Debt will begin sending letters over the next several weeks that will alert recipients that their medical debt has been paid off, Newman and Sesso said. 

"We say, 'We have acquired the debt, and you are relieved of the debt and please go to our website to know we are a legitimate agency," Sesso said. "The hardest thing we have to get across is that this isn't a joke — it isn't another bill. We want people to open the envelope."

In most cases, medical debt isn't intentional, Newman added. But health care trends such as rising deductibles and the impact of the pandemic, when millions lost jobs and income, have left many households in financial distress. And even people with insurance can be socked with bills they can't pay, such as Alexis Hernandez, who found himself with medical bills of almost $2 million after suffering burns in an accident. 

His insurer refused to pay because the injury occurred in Mexico even though he was treated in the U.S. After his case was featured by CBS News, his bill was waived

The nation's mountain of medical debt is likely to grow due to the impact of COVID-19, which has created both health and financial crises, Sesso said. 

She added, "We understand that medical debt isn't a personal failing — that you are at the tail end of a broken system, and we are relieving that debt for you, and you don't have to pay it back."

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