Paying off people's medical debt has little impact on their lives, according to a study

Over the past decade, RIP Medical Debt has grown from a small nonprofit group that received less than $3,000 in donations to a multimillion-dollar force in healthcare philanthropy.

He did so with a unique and simple strategy to address the enormous sums Americans owe hospitals: purchasing old bills that would otherwise be sold to collection agencies and writing off the debt.

Since 2014, RIP Medical Debt estimates it has eliminated more than $11 billion in debt with the help of major donations from philanthropists and even city governments. In January, New York Mayor Eric Adams announced plans to donate $18 million to the organization.

But a study released Monday by a group of economists calls into question the assumptions of this high-profile charity. After tracking 213,000 people in debt and randomly selecting some to work with the nonprofit group, researchers found that debt relief did not, on average, improve debtors' mental health or credit scores. And those whose bills had been paid were just as likely to forego medical care as those whose bills had not been paid.

“We were disappointed,” said Ray Kluender, assistant professor at Harvard Business School and co-author of the study. “We don't want to sugarcoat it.”

Allison Sesso, executive director of RIP Medical Debt, said the study was at odds with what the group had regularly heard from those it helped. “We're getting responses from enthusiastic people,” she said.

In a survey the group conducted last year, 60% of people with medical bills said the debt had negatively affected their mental health, and 42% said it had delayed medical care.

Studies had shown significant financial and mental health improvements for other types of debt relief, such as repaying student loans or mortgages. But these debts are more pressing: Homeowners who default on their mortgages could quickly lose their homes, while a hospital bill can languish for years with little consequence.

Major credit reporting agencies removed debts under $500 from credit reports last year, further reducing the impact of outstanding debt. And the federal government is pursuing rules that would eliminate medical bills from credit reports entirely.

The study, published as a National Bureau of Economic Research working paper, is one of the first to examine the impact of medical debt relief on individuals. “This is a very important policy area right now, so it's important to rigorously show what the outcomes are,” said Amy Finkelstein, a health economist at the Massachusetts Institute of Technology, whose research has shown significant positive effects in getting health insurance.

Ms. Finkelstein is also co-director of J-PAL North America, a nonprofit group that conducts randomized experiments on social programs, and provided some funding for this project.

“The idea that maybe we could get rid of medical debt, and it wouldn't cost as much money but would make a big difference, was appealing,” Ms. Finkelstein said. “What we've learned, unfortunately, is that it doesn't seem to have much of an impact.”

Kluender and one of his co-authors got the idea for the study in 2016 when they saw RIP Medical Debt on a popular segment of John Oliver's television show. They and two other economists collaborated with the nonprofit group to conduct the experiment, which erased $169 million in debt from 83,000 borrowers between 2018 and 2020.

Those patients, like others that RIP Medical Debt typically helps, were not making payments on those bills, which were at least a year old. Economists tracked patients' credit scores and sent them surveys asking questions about their mental health and obstacles they had faced in getting medical care.

They compared these results with those of a control group of 130,000 people who had not had their debts canceled and found few differences. The two groups reported similar financial barriers to seeking medical care and similar access to credit. Patients whose medical debts had been paid were just as likely to have trouble paying other bills a year later.

“Many of these people have many other financial problems,” said Neale Mahoney, a Stanford economist and co-author of the study. “Removing red flags doesn't mean that they suddenly turn into a good risk, from a lending perspective.”

For some study participants with no other debts in collections, canceled medical bills led to a 3.6-point increase in their credit score, on average.

The researchers were surprised to find that for some people, particularly those already experiencing high levels of financial stress, debt relief made their depression worse. It's possible, the researchers speculated, that news of the sudden refund inadvertently reminded debtors of other unpaid bills.

RIP Medical Debt has “evolved” since 2020, when the experiment ended, Sesso said. Major donations now allow the group to buy billions in debt in a single city, which she says could have a bigger impact on recipients' finances.

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