Paying off people’s medical debt for pennies on the dollar = BRILLIANT (and loving)!

A story that warms the cockles of my libertarian-leaning heart…

My cousin came across this article highlighting a megachurch’s $10 million gift to people in its community with medical debt, but my focus isn’t on the megachurch (though the parishioners deserve a huge kudos). No, it is on the non-profit company that developed the idea, RIP Medical Debt (they call themselves RIP, so I will too). It buys up old medical debt cheaply and then, drumroll please, forgives it.

Here’s the explanation: “Outstanding medical debt often is bundled into portfolios for sale on the secondary debt market (similar to mortgages). Using sophisticated data analytics, RIP can search medical debt portfolios to pinpoint those bundles most in need of relief. We then negotiate to purchase that debt at significantly reduced rates- pennies on the dollar (average ratio is 1:100). Such reduced rates typically are available only to large organizations in the debt buying industry.”

They aren’t joking about that “pennies on the dollar” number. According to the FAQ, “For every $14,400 we raise, we will abolish $1 million in personal medical debt – impacting the lives of some 300 individuals and families struggling with medical debt.” That’s $0.0144 paid per dollar of debt.

When I learned about RIP, I figured they’d buy all their debt on the secondary market, since the older the debt and the more times it’s been sold, the less likely it is to be paid in full and the greater the discount. However, while RIP does buy from the secondary market, it also buys the debt directly from hospitals and providers. This blew my mind. Medical debt is discounted that quickly?! Well, maybe not quickly; it appears that some providers hold onto their debt portfolios for a long time.  Still, what a tremendous opportunity.

Though RIP Medical Debt cannot yet find and pay off individual debts (a long-term goal), the company can find and pay off debt based on geographical location (to a certain extent), which means donors can target their own communities. There’s even a program for veterans. And as a 501(c)(3) charity, its donations are tax deductible and (best of all) its debt forgiveness is tax free to recipients.

One of my worries when evaluating a donation opportunity like this has to do with long-term negative consequences. Will it incentivize future debtors to not pay under the assumption that the debt will eventually go away? With medical debt, this isn’t as much of an issue as in other industries from what I’ve researched, though if, say, it got to the point where all medical debt was forgiven after x years, that might change. However, with this particular company, it may not be much of an issue at all. In an interview with CBS New York, one of the founders of RIP said, “We separate those people who can’t pay from those people who can pay.” In the same interview, the narrator explained, “RIP Medical Debt says they have technology to identify the patients who need the most help and hope to erase what they owe.” If true, I’m thrilled.

I’ve only begun my due diligence on this idea (and company), but its simplicity and disproportionate positive impact appeal to me. Maybe our church could fundraise to relieve debt in our town. Something to ponder…

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