Economics for Church Leaders: How to Think About Medical Debt Relief

The Concept

Medical debt relief is often seen as an act of social justice.

What It Means

Medical debt refers to the monetary obligation resulting from unpaid medical expenses that weren’t covered by insurance. After providing medical services, a health care provider will usually bill the patient directly or hire an outside agency to collect what’s owed. If the patient will not or cannot pay the medical bill, the health care provider will usually write off the debt as a business loss and sell the remaining debt to a third-party buyer.

As a recent article in Religion News Service (RNS) points out, buying the medical debt of the poor and “erasing” their obligation to pay it has become a popular means of helping the economically disadvantaged. More than 800 U.S. congregations have partnered with a nonprofit called RIP Medical Debt to erase medical debt.

According to RIP Medical Debt, the organization uses donations to buy debt in bundles, millions of dollars at a time at a fraction of the original cost, which they say “means your donation relieves about 100x its value in medical debt.”

What You Should Know

The limitations of time and attention make it impossible for us to fully consider the problems and opportunities with any particular type of giving. We can also become paralyzed by the decision-making process to the point we never use our funds in a way that would honor God.

Yet as medical debt erasure becomes more popular, church leaders should have a basic awareness of what it does and the possible drawbacks. Here are five things you should know and do.

1. Understand why the debt is so deeply discounted.

Almost every news article about churches involved in paying off medical debt includes claims that sound almost too good to be true. They always highlight how churches are able to donate money that’s leveraged to have a thousand-fold effect.

For instance, the RNS article references one church in North Carolina that says it was “able to raise almost $26,000 and pay off $5 million in medical debt.” That means they bought one dollar of debt for 0.0052 cents—which would indeed be an extraordinary deal.

Yet the question rarely asked or answered is “Why would someone sell something worth $5 million for $26,000?” The answer is they wouldn’t and don’t. The debt isn’t worth $5 million; it’s worth what buyers will pay—about $26,000. It’s deeply discounted because it’s considered almost completely uncollectable.

If $5 million worth of debt was considered mostly collectible, it might still be sold at a discount such as $3–4 million. But buyers know they’re likely to collect less than 1 or 2 cents per dollar owed, which is why the debt is sold for a fraction of a cent (e.g., 0.0052 cents).

So the typical framing—“Wipe out $5 million in debt for $26,000!”—can mislead church members. The debt is so deeply discounted because attempts to collect on the debt have failed. And by the time the debt has become uncollectible, the damage to the individual debtor has likely already been done.

2. Recognize most of the damage of the debt has already been done.

By the time RIP Medical Debt intervenes, the individual has most likely already suffered the consequences of defaulting on his debt. For instance, the debt will likely have been reported to the credit bureaus and will remain on a consumer’s credit report for up to seven years.

Medical debt is also time-barred, meaning there’s a statute of limitations and beyond that point the creditor cannot sue to collect the debt. The time limit varies by state, but it’s often between 2 and 10 years. If debt collectors plan to file a lawsuit to collect, they’ll do it sooner rather than later.

So by the time RIP Medical Debt gets involved, an individual has most likely already been hounded by bill collectors and had her credit rating affected. As the organization notes, “Prior to RIP’s purchase, many of these bills passed through months or years of collection.”

Given this, churches may find their funds are better used to help debtors directly. For instance, they can identify people in need who haven’t yet defaulted and pay the money owed directly to the healthcare provider. Churches can also intervene by helping the patient to negotiate with a health care provider to pay a lower amount, such as what would be paid by an insurance company or Medicare.

Another way congregations can help is to educate those in poverty about how they can deal with debt collectors. Most people are unaware you can simply mail a letter to the collection company and tell them to stop contacting you. Reducing the stress from being hounded by debt collectors can be more valuable to a debtor than getting a letter saying his debt is “erased” years after the collectors have stopped calling.

3. Understand debt relief isn’t just going to the ‘poor.’

Proverbs 22:7 says, “The rich rules over the poor, and the borrower is the slave of the lender.” One of the primary reasons churches want to alleviate medical debt is that they believe it’s a way to help those in poverty be released from financial slavery.

But the debt relief provided by RIP Medical Debt doesn’t just go to those who are below the poverty line. The organization purchases a portfolio of medical debt based on two financial criteria: the individual debtor must earn less than four times the federal poverty level (varies by state and family size) or have debts equalling 5 percent or more of his or her annual income.

Within the 48 contiguous states, a rate of four times the poverty level is $54,360 for an individual and $111,000 for a family with four people in the household. In comparison, the median individual income is $54,132 and the median household income is $70,784. Using the 5 percent standard, an individual who earns an annual income of $200,000 may qualify if he has medical debt in excess of $10,000.

While there’s nothing wrong with church members donating to pay off debts for people with higher incomes—or even for those who earn more money than their own families—that factor should be made clear.

4. Consider the possible violations of conscience.

Because of Health Insurance Portability and Accountability Act (HIPAA) regulations, debt buyers don’t know what medical procedures resulted in the unpaid debt—nor do they care. But a church could unknowingly be donating to pay the debt on medical services they find morally objectionable, such as elective abortions or gender transition therapies and surgeries.

There are solid reasons, of course, to believe a Christian has done nothing wrong by attempting to perform a noble action (providing financial relief) when it could have the remote and unintended effect of supporting an evil action (such as abortion). However, some Christians might earnestly believe they’re indirectly morally complicit in providing financial assistance for an evil act even though it wasn’t their intention. Church leaders may need to consider such objections when encouraging their congregations to participate in medical debt erasure.

5. Help your congregation make a fully informed decision.

Even after considering these issues, a church congregation may determine this is the proper way to use their benevolence funds. There’s nothing inherently wrong with that, and RIP Medical Debt does seem to be a reputable organization. But by helping your congregation think through the process, you can ensure they’re doing it for the right reasons and not simply because some eye-popping numbers gave them the impression they can fix complex debt problems with a small amount of church funds.