Over the past decade, RIP Medical Debt has grown from a small nonprofit with less than $3,000 in donations to a multi-million dollar organization in medical philanthropy.
The company did this with a unique and simple strategy to address the huge amount of debt Americans owe to hospitals. The idea is to buy old invoices that would otherwise have been sold to a collection agency and cancel the debt.
Since 2014, RIP Medical Debt estimates that it has eliminated more than $11 billion in debt with the help of major gifts from philanthropists and city governments. In January, New York City Mayor Eric Adams announced plans to donate $18 million to the organization.
But a study released Monday by a group of economists casts doubt on the high-profile charity's premise. After tracking 213,000 people with debt and randomly selecting those who worked with their nonprofit organizations, researchers found that, on average, debt relief did not improve debtors' mental health or credit scores. I discovered that. And people whose bills were paid were just as likely to not receive medical care as those whose bills were not paid.
“We were disappointed,” said Ray Kluender, an assistant professor at Harvard Business School and co-author of the study. “We don't want it to surface.”
Alison Sesso, executive director of RIP Medical Debt, said the study contradicts what the organization regularly hears from people it helps. “We're hearing excitement from people,” she said.
In a survey conducted by the organization last year, 60% of people with medical bills said their debt had had a negative impact on their mental health, and 42% said they had delayed seeking medical care.
Research shows that other types of debt relief, such as paying off student loans or mortgages, can significantly improve your mental health and finances. But these debts are more urgent. Homeowners who don't pay their mortgage can quickly lose their home, but hospital costs can last for years with little impact.
A new federal rule that went into effect last year removed medical debts under $500 from credit reports, further reducing the impact of unpaid hospital bills.
The study, published as a National Bureau of Economic Research research paper, is one of the first to examine the impact of medical debt relief on individuals. “This is a big policy area right now, so it's important to show exactly what the consequences are,” said Amy Finkelstein, a health economist at the Massachusetts Institute of Technology, whose research Insurance coverage has been shown to have a significant positive effect.
Ms. Finkelstein is also co-director of J-PAL North America, a nonprofit organization that conducts randomized experiments on social programs, which provided funding for the project.
“The idea that maybe we could eliminate medical debt, and it wouldn't cost a lot of money, but it would make a big difference, was appealing,” Finkelstein said. “Unfortunately, what we've learned is that it doesn't seem to have a significant impact.”
Kruder and one of his co-authors got the idea for the study in 2016 after seeing RIP medical debt featured on a popular segment on John Oliver's TV show. They and two other economists worked with a nonprofit organization to conduct an experiment that wiped out $169 million in debt from 83,000 debtors between 2018 and 2020.
These patients, like other patients RIP Medical Debt typically helps, had unpaid bills that were at least a year old. The economists monitored patients' credit scores and sent them questionnaires asking about their mental health and barriers they faced in receiving care.
They compared these results with a control group of 130,000 people who did not receive debt forgiveness and found little difference. The two groups reported similar financial barriers to receiving health care and similar access to credit. Even patients who pay off their medical debt are likely to have trouble paying other expenses a year later.
“Many of these people have a lot of other financial problems,” says Neil Mahoney, an economist at Stanford University and co-author of the study. “From a lending perspective, just because you remove one red flag doesn't suddenly turn it into a good risk.”
Among study participants with no other debts in collections, erased medical bills increased their credit scores by an average of 3.6 points.
The researchers were surprised that debt relief worsened depression for some people, especially those who already had high levels of financial stress. Researchers speculate that being informed of the surprise repayments may have inadvertently reminded debtors of other unpaid bills.
Rest In Peace Medical Debt has “evolved” since the experiment ended in 2020, Sesso said. Large donations now allow the organization to buy billions of dollars in debt from a single city, which could have an even bigger impact on recipients' finances, he said.