New Jersey eliminates $100 million in medical debt, helping 50,000 residents by using pandemic relief funds

New Jersey is wiping out $100 million in medical debt for about 50,000 of its residents, using federal pandemic relief funds and partnering with a nonprofit that buys the debt from hospitals or the secondary market for pennies on the dollar.

Announcing the partnership with Undue Medical Debt, formerly known as RIP Medical Debt, Democratic Gov. Phil Murphy noted Tuesday how this type of debt can accumulate quickly amid “tragic accidents or devastating diagnoses” and go on to follow a person for decades.

“When someone is sick or injured, they should be able to focus on what matters most — getting better — rather than worrying about how they will pay for the life-saving care and services rendered to them,” he said in a statement.

The concept of buying outstanding medical debt only to eliminate it is not new, though it gained momentum when the COVID-19 pandemic was at its peak and families saw themselves drowning in debt.

Undue has become a leader in the movement, partnering with major donors, church groups, and self-described “gutter-pagan, mostly queer dirtbags” in Philadelphia. The groups commit to raising a certain amount in funds and Undue acts as the middleman, seeking out medical debt available for purchase directly from hospital systems or on the secondary market at a fraction of the price. Unlike debt collectors who try to collect unpaid debts, sometimes through wage garnishment and litigation, Undue forgives them at no cost to beneficiaries.

» READ MORE: A group of Philadelphians erased $1.6 million in local medical debt. They celebrated with an unofficial debt burning.

Under President Joe Biden’s administration, the American Rescue Plan Act aimed to be an economic stimulus during the pandemic and help contain the spread of the virus. Local governments have also used those funds, which need to be committed by the end of the year, to purchase and forgive debt. Counties and cities, including New Orleans and Pittsburgh, made plans to use federal funds to buy medical debt.

States, including Connecticut and Arizona, have been the latest government entities to use federal pandemic relief funds to provide medical debt relief. (Pennsylvania allocated $1 million in its most recent budget to medical debt relief using state funds.)

New Jersey used $550,000 in American Rescue Plan dollars for the Undue partnership. Undue then brokered a purchase of $61.6 million in debt from Prime Healthcare, the fifth-largest for-profit health system in the country, which operates dozens of hospitals in 14 states. That purchase aided close to 18,000 New Jersey residents.

The federal funds also helped buy $38.4 million in debt from the secondary market, which in turn is slated to help almost 32,000 Garden State residents. For some, the effort will offer partial relief, but others could could see all their debt erased.

Residents did not need to do anything to qualify. Undue chooses people based on their income level and debt ratio. Beneficiaries in New Jersey are four times or below the poverty level or have debt that is 5% or more of their annual income.

Just how effective debt erasure is remains subject to debate. A study published this year by a group of economists found that, on average, those who had their debt wiped did not report experiencing a boon to their mental health, finances, or their credit score. Undue has said it’s received reports of the opposite. Meanwhile, other health-care advocates stress that debt erasure is not enough to address a broken system where seeking life-saving care can lead to crippling debt.

New Jersey is not only focusing on debt erasure.

Last month, Murphy signed the Louisa Carman Medical Debt Relief Act, which bars a medical debt creditor or collector from reporting the sum to a credit reporting agency, charging more than 3% interest on medical debt, or garnishing wages from people who earn below a certain annual income.

The Murphy administration is focusing on “immediate and direct relief while also changing policy to ensure systemic and lasting change and protections,” Shabnam Salih, director of the Office of Health Care Affordability and Transparency, said in a statement.

Envelopes with “Undue” branding began making their way to beneficiaries Monday, according to the Murphy administration.