Connecticut to become 1st state to cancel medical debt for eligible residents: Exclusive

Connecticut will become the first state to cancel medical debt for eligible residents, Gov. Ned Lamont announced exclusively Friday on "Good Morning America."

The state plans to erase approximately $1 billion in medical debt this year by leveraging $6.5 million in American Rescue Plan Act funds, it said.

"This is not something they did because they were spending too much money, this is something because they got hit with a medical emergency," Lamont told "GMA." "They should not have to suffer twice -- first with the illness, then with the debt."

The state said it is contracting with a nonprofit organization that buys medical debt and eliminates it at a reduced cost.

Residents whose household income is up to 400% of the federal poverty line (for a family of four, that's $124,800 annually) or whose medical debt equates to 5% or more of their annual income will be eligible under the program, the state said.

Some 250,000 residents are anticipated to see their medical debt erased with this initial $6.5 million investment, the state said.

"I think it's really important that people have a sense that they can start building wealth of their own," Lamont said. "We're making that easier for people to do -- and the best way to start is eliminate the debt you've got."

Eligible households won't have to apply because the contracted agency will work with state agencies to automatically wipe their medical debts clear, according to the state. The relief should go into effect by June, the state said.

More than 1 in 10 Connecticut residents have medical debt in collections, according to the state.

Medical debt is the leading source of collections debt for Americans -- greater than credit cards, personal loans, utilities and phone bills combined -- according to a recent Consumer Financial Protection Bureau report.

The percentage of Americans who are part of families having trouble paying their medical bills in the past year was 10.8% in 2021, a recent report from the Centers for Disease Control and Prevention found.

A 2022 analysis of government data by the KFF-Peterson Health System Tracker estimated that 9% of adults -- approximately 23 million people -- owed more than $250 in health costs. Those more likely to report significant medical debt included people living with a disability, uninsured adults, low-income adults and Black Americans, the report found.

As governments look to address the issue, cities and counties nationwide are using American Rescue Plan funds to provide medical debt relief. According to the White House, $16 million in the stimulus funds are being used to purchase and wipe out nearly $1.5 billion in medical debt in communities nationwide, including New Orleans; Pittsburgh; Toledo, Ohio; and Cook County, Illinois, home to Chicago.

Elsewhere, New York City recently announced a plan to invest $18 million to erase $2 billion in medical debt for up to 500,000 eligible New Yorkers over the next three years.

In other measures addressing the burden of medical debt, Colorado last year passed a law removing medical debt from credit reports -- becoming the first state to enact such legislation.