Connecticut Gov. Ned Lamont (D) has announced plans to eliminate approximately $1 billion in medical debt for eligible residents. This initiative, leveraging $6.5 million from the American Rescue Plan Act, marks Connecticut as potentially the first state to implement such a program. While the concept of alleviating financial burdens for families facing medical emergencies is noble, the approach raises significant concerns about the implications for taxpayers and the broader economic consequences.
Lamont, speaking on ABC News’s “Good Morning America,” highlighted that people overwhelmed by medical bills “should not have to suffer twice — first with the illness, then with the debt.” According to NPR, the plan involves a partnership with a non-profit organization to purchase the debt, similar to for-profit debt collection firms, but with the critical difference of not pursuing the collection from individuals.
— Isobella Alexandra (@isobella_alexan) February 5, 2024
The eligibility criteria are set at a household income up to 400% above the federal poverty line, equating to nearly $125,000 annually for a family of four. Additionally, residents whose debt accounts for 5% or more of their annual income are also eligible. The state expects that the initial investment will clear the debts of about 250,000 residents.
However, this policy raises concerns about using taxpayer funds to cancel debts. Critics argue that while the intention is to aid those in need, it inadvertently burdens taxpayers, many of whom may have diligently paid their medical bills or responsibly managed their finances to avoid debt.
The Biden administration has explored removing medical debt from consumer credit reports, citing that it has “little predictive value” in credit decisions. The Consumer Financial Protection Bureau (CFPB) in 2022 reported medical debt as the most common collection type, emphasizing the need for accuracy and fairness in debt collection practices.
Lamont’s plan is certainly ambitious, aiming to “start building wealth” for residents by eliminating existing debts. According to the U.S. Census Bureau, nearly 1 in 5 U.S. households have some medical debt, with the median amount owed being $2,000.
Many economists caution that widespread debt cancellation could encourage financial irresponsibility. There is a heightened risk that people will become incentivized to bypass careful planning and management of their medical care and finances in general when there is an expectation of debt forgiveness.