Lawmakers propose spending $5M to resolve $500M in Minnesotans' medical debt

Minnesota DFL lawmakers are proposing a one-time expenditure of $5 million to retire as much as $500 million in unpaid medical debt for state residents.

Sen. Liz Boldon and Rep. Liz Reyer joined Minnesota Attorney General Keith Ellison on Friday to announce the proposal, which would rely on a nonprofit agency called Undue Medical Debt to identify and pay off delinquent medical bills.

The idea is patterned after St. Paul’s initiative, which last year spent pennies on the dollar to resolve $40 million in medical debt 32,000 city residents owed to Fairview Health Services. In all, the city plans to spend $1 million to forgive $100 million in medical debts.

Patients who can’t afford their bills endure stress and often become more seriously ill because they avoid needed health care and don’t want to amass more debt, said Reyer, an Eagan lawmaker who co-authored the Medical Debt Reset act.

“I watched my mom go through that, forced into bankruptcy when she couldn’t pay my dad’s final medical bills,” she said.

Jenn Schultz dreaded every trip to the mailbox after multiple treatments for skin cancer. Her bills were piling up even though she was working three jobs to pay them.

While St. Paul’s plan didn’t erase all of her debt, Schultz said a surprise letter in the mail from Undue erased bills from 2018 and helped make her financial burden more manageable.

“I put [the envelope] up to my forehead and said a little prayer,” said Schultz, who had heard of St. Paul’s debt-relief initiative and was hoping she was a recipient. “Then I started crying when I read.”

The proposal follows a series of Minnesota laws enacted last year that prevented health care providers from denying care to patients with overdue debts, reporting patients to credit rating agencies or suing patients' spouses to collect debts if patients die.

Hospitals had agreed to limits on collection activities already through a voluntary agreement with Ellison’s office, but the law makes them a requirement and expands them to clinics and outpatient providers as well.

Now the goal is to help Minnesotans “reset” existing debts, which will have an economic benefit for the state because “people become locked in their own private recession” when struggling with medical bills, said Jeff Smedsrud, an Undue board member.

Eliminating $500 million in overdue medical debts might leave $100 million to $150 million in such debts in Minnesota, but it would be one of the most ambitious state efforts yet to confront the nationwide problem, he said.

“It will go a very, very long way to making Minnesota ... a medical-debt-free state.” he said.

Overdue medical debts can resolve in a variety of ways. Some patients end up qualifying for charitable relief, but others face collections calls, bills, lawsuits and even wage garnishment, when an employer redirects a worker’s pay toward creditors. Minnesota’s hospitals sometimes write off debts, including almost $500 million in unpaid bills deemed uncollectible in 2021, according to the Minnesota Hospital Association.

Undue Medical Debt provides an alternative, buying languishing debts in bulk from health care providers or their debt collectors. The nonprofit has reportedly resolved more than $14 billion in delinquent medical bills nationwide over the past decade.

Patients qualify if their household income is 400% or less than the federal poverty level (about $120,000 for a family of four) and if their medical debts consume at least 5% of their income.

Boldon said she is hopeful to receive Republican support for the investment because medical debt is a bipartisan problem. Smedsrud said overdue medical debts are more common among rural Minnesotans, women, veterans, people of color and adults younger than 30.