'Sobering' study finds nearly no benefits from medical debt relief efforts

A nonprofit organization’s work buying out and forgiving billions of dollars of medical debt may not be helping patients as much as it or its benefactors had hoped, economists say.

In a working paper published in the National Bureau of Economic Research Monday, researchers who reviewed debt relieved by RIP Medical Debt between 2018 and 2020 painted a “sobering” picture of “no improvements in financial well-being or mental health, … reduced repayment of medical bills and, if anything, a perverse worsening of mental health.”

The findings, they wrote, throw a wrench into an increasing area of interest for policymakers, providers and local government leaders.

The nonprofit—which was among the honorees of last year’s Fierce 50 for its social impact—works with these stakeholders to buy medical debt for pennies on the dollar from secondary debt markets. Its president and CEO, Allison Sesso, asserts that the working paper’s findings are dated and that adjustments the group independently made to its debt relief processes in recent years already address some of the issues highlighted in the working paper.

“We hear every day from constituents that we have changed their lives by eliminating their burdensome medical debt, a debt that is the leading cause of bankruptcy, and we are committed to continuing this work until our intervention is no longer needed,” Sesso told Fierce Healthcare in an emailed statement.

In partnership with RIP Medical Debt, the researchers reviewed two debt relief experiments that looked for positive impacts when debt was relieved before or after it was sold from a provider to a third-party debt collectors.

The former consisted of 14,377 people who had an average of $1,321 of debt each, or $19 million total, relieved at a price of $0.055 per dollar. They were compared to a 61,496-person control group whose debt was sold and pursued as usual.

The latter experiment looked at individuals whose medical debt had been under collection for several years, which they noted makes up the bulk of the nonprofit’s debt relief efforts. Here, RIP Medical Debt had relieved 69,024 people with an average of $2,167 debt per person, or $150 million total, at a price of less than a penny on the dollar. They were compared to 68,014 patients who retained their debt.

When reviewing credit bureau data across both experiments, the researchers didn’t see any substantial changes in credit access, utilization and other measures of financial distress.

Within a sub-sample of individuals with relieved debts, they estimated an “economically small” credit score increase of 3.6 points on average and a gradual average increase in credit limits of $342. Both of these were greater among those with no other debts in collections. There were no significant changes in borrowing or financial distress among the sub-sample.

Further, relieving the debt led to “a statistically significant and economically meaningful reduction in payment of existing medical bills,” which they noted was greater for those with more initial debt. Reduced repayment was “almost entirely” related to medical bills incurred prior to the relief experiment and didn’t reflect any changes in healthcare utilization that resulted from the debt relief, they wrote.

"The repayment response is consistent with treated persons raising their expectations of future debt relief or targeting a certain level of indebtedness,” they wrote in the paper. “The result rejects the theory that debt relief could increase repayment via an income effect or by leaving more resources in a mental account to pay medical bills.”

Of concern, surveys sent out to some of the experiments’ participants showed statistically insignificant effects on health, healthcare utilization and financial wellness, on average.

Here, they noted that survey respondents predicted an improvement in depression due to the debt forgiveness but that the survey’s actual measure of depression inched toward a statistically insignificant decline. The researchers found that the negative effect was concentrated among individuals who had the greatest medical debt at baseline, with those in the highest quartile showing increased depression and worsening anxiety, stress, general health and subjective well-being.

Though unexpected and largely unexplored, the researchers pointed to prior research that found similar effects from one-time transfers of cash to low-income households. The individuals, they hypothesized, may become distressed when the unexpected windfall still isn’t enough to address their financial needs or as a result of “the stigma of receiving charity.”

Still, the team’s “disappointing results” shouldn’t keep stakeholders from addressing the nation’s “pervasive” medical debt, which those impacted told RIP Medical Debt in 2023 (PDF) often impacts their mental health and self-worth.

“Medical debt is pervasive, and the population we study is experiencing poor mental health and severe financial distress. While the results indicate limited benefits from downstream debt forgiveness, there is still potential that medical debt relief targeted further upstream or in different populations could yield meaningful benefits. Further research will be needed to demonstrate such effects,” they concluded.

Since its founding in 2014, RIP Medical Debt has helped forgive more than $11 billion in debt. The charity had picked up steam in 2016 following an appearance on John Oliver’s “Last Week Tonight, and has since launched partnerships with health systems like Ballad Health, payers like SCAN Group and cities like New York and New Orleans.

In response to the working paper, Sesso said the researchers’ findings and suggestions “fortunately reflect a lot of the changes we’ve already made independently during these years.”

These include shifting its qualification for medical debt relief from individuals at two times or below the federal poverty level to those four times the federal poverty level and “sourcing medical debts directly from providers like hospitals to erase debts sooner in their lifecycle and encourage people to reengage with the healthcare system,” she said.

Sesso noted that the collaborations with local governments “concentrate debt erasure to a specific locality to deepen our impact.” The nonprofit has also put together a policy group to pair its “essential” short-term relief with “practical, upstream solutions to the medical crisis,” she added.

“Further research is required to understand the nuances of our work today, which is why we are exploring additional evaluations of our impact with potential academic partners,” Sesso said. “We look forward to building on this first assessment of our model (albeit narrow in focus) as it sheds light on additional, unexplored dimensions of debt relief that still need to be studied like willingness to go back to a doctor, household budget choices and mental health benefits over time.”