Over the past decade, RIP Medical Debt has grown from a tiny nonprofit group that received less than $3,000 in donations to a multi-million dollar powerhouse in health care philanthropy.
He did so with a unique and simple strategy for dealing with the huge amounts of money Americans owe to hospitals: buying old bills that would otherwise be sold to collection agencies and eliminating the debt.
Since 2014, RIP Medical Debt estimates it has eliminated more than $11 billion in debt with the help of large donations from philanthropists and even city governments. In January, New York City Mayor Eric Adams announced plans to give the organization $18 million.
But a study published by a group of economists on Monday casts doubt on the high-profile charity’s case. After tracking 213,000 people who had debt and randomly selecting some to work with the nonprofit group, researchers found that debt relief did not improve debtors’ mental health or credit scores, on average. And those whose bills were paid were just as likely to forgo medical care as those whose bills remained unpaid.
“We were disappointed,” said Ray Kluender, an assistant professor at Harvard Business School and co-author of the study. “We don’t want to sugar coat it.”
Allison Sesso, executive director of RIP Medical Debt, said the study ran counter to what the group regularly heard from those it had helped. “We’re hearing back from people who are excited,” he said.
In a survey the group conducted last year, 60 percent of people with medical bills said debt had negatively affected their mental health, and 42 percent said they had delayed medical care.
Studies have shown significant mental health and financial improvements for other types of debt relief, such as paying off student loans or mortgages. But these debts are more urgent: 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 of less than $500 from credit reports last year, further reducing the impact of unpaid debt. And the federal government is pursuing rules that would remove 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. “It’s a big policy area right now, so it’s important to show rigorously what the results are,” said Amy Finkelstein, a health economist at the Massachusetts Institute of Technology, whose research has shown significant positive effects from getting health insurance.
Ms. Finkelstein is also co-director of J-PAL North America, a non-profit group that conducts randomized experiments in 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 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.”
Mr Kluender and one of his co-authors came up with the idea for the study in 2016 when they saw RIP Medical Debt featured in a popular segment from John Oliver’s TV show. They and two other economists worked with the nonprofit group to run the experiment, which eliminated $169 million in debt from 83,000 borrowers between 2018 and 2020.
These patients, like others RIP Medical Debt typically helps, did not make payments on these bills, which were at least a year old. Economists tracked patients’ credit scores and sent them surveys with questions about their mental health and the barriers they had faced in getting medical care.
They compared these results with a control group of 130,000 people who had not gotten out of debt and found few differences. The two groups reported similar financial barriers to seeking medical care and similar access to credit. Patients whose medical debt was paid off were just as likely to have trouble paying other bills a year later.
“A lot of these people have a lot of other financial issues,” said Neale Mahoney, a Stanford economist and co-author of the study. “Removing a red flag doesn’t suddenly make them a good risk, from a lending perspective.”
For some in the study with no other debt in collections, written off medical bills led to a 3.6 point increase in their credit score, on average.
The researchers were startled to find that for some people, particularly those who already had high levels of financial stress, debt relief worsened their depression. It’s possible, the researchers speculated, that being told about the sudden payment inadvertently reminded debtors of their other unpaid bills.
RIP Medical Debt has “evolved” since 2020, when the experiment ended, Ms Sesso said. Large donations now allow the group to buy billions in debt in a single city, which he said could have a bigger impact on the beneficiaries’ finances.
