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Arizona to spend $30 million to pay residents' medical debt

Gov. Katie Hobbs announced plans to use federal funds to pay off medical debt for up to one million Arizonans. 

Arizona will partner with RIP Medical Debt, a nonprofit that buys up medical debt from hospitals and other debt holders for pennies on the dollar. According to the organization, it has retired over $10 billion worth of debt for over 7 million people using donations.

Hobbs said the state will use up to $30 million in federal COVID-19 relief to fund the partnership.

“This is a win-win that will give so many Arizonans a clean slate and open the doors for a better future,” Hobbs said. 

Jeff Smedsrud, a board member with RIP Medical Debt, says that investment could be used to purchase between $1.5 and $2 billion dollars in medical debt, which could provide debt forgiveness for up to 1 million Arizonans over the next two years.

“This is the largest public-private initiative ever to wipe out medical debt,” Smedsrud said.

The program will apply to Arizonans with medical debt equal to or greater than 5% of their income. It will also cover those who earn less than 400% of the federal poverty level — that’s about $125,000 dollars a year for a family of four.

Smedsrud said that other than that income criteria, the nonprofit selects recipients randomly. 

“We don't pick elderly people versus younger people; people of color versus not,” he said. “We send out a notice to everybody in that database that qualifies and meets those definition, and it just says, ‘good news – your medical debt is gone.’”

Smedsrud said the financial assistance is not taxable, because the organization makes it anonymously.  

Jim Baker, an Arizona resident who could potentially benefit from the program, praised the announcement. Baker, who has lived through two cancer diagnoses and many other related health issues, said his fixed Social Security income barely keeps him above water as he attempts to pay off around $20,000 in medical debt.

“For me, it would mean that I might be able to enjoy my retirement, which right now the only thing I have to look forward to is every month paying my debt service and never being able to finally pay off the principals of it,” Baker said.

Hobbs brushed off questions of whether the program could run afoul of Arizona’s Gift Clause, a provision in the state Constitution that bars the state government from donating money to individuals or businesses.

“I can assure you we would not be taking this action if we weren't fully confident in the legality of it,” said Hobbs, who added that her attorneys are confident the deal is legal.

The governor also acknowledged that the $30 million investment in retiring medical debt, though significant, will not resolve the underlying issues that saddle many families with that debt and said her office is looking at other ways to provide relief to Arizonans.

“Certainly, I think this is one step in absolutely the right direction, but we know it doesn't fix the problem,” Hobbs said.

She said Prop. 209 — a proposition that passed with 72% of the vote in 2022 and reduced the maximum interest rates that can be charged on medical debt — was another good step but that she would like to see additional action at the federal level to address the issue.

Hobbs also called for proposals to lower prescription drug prices in her State of the State speech in January.

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Wayne Schutsky is a broadcast field correspondent covering Arizona politics on KJZZ. He has over a decade of experience as a journalist reporting on local communities in Arizona and the state Capitol.