House Appropriations Committee advances bill to buy and abolish medical debt and bar credit reporting

The House Appropriations Committee on April 10 heard testimony on S.27, an act that would appropriate $1,000,000 from the general fund in fiscal year 2026 to the state treasurer to contract with a nonprofit to acquire and abolish certain medical debts incurred by Vermont residents and would ban credit-reporting of medical debt going forward.

The bill, introduced to the committee as a health-care measure and described by Legislative Counsel staff, would require the treasurer's contractor to purchase eligible medical debt at fair market value, abolish it with no tax or cost consequences for the debtor, and work with providers or collection agencies to remove any adverse information from consumer credit reports. "This is S.27 as recommended by the Committee on Health Care," said Jen Carby of the Office of Legislative Counsel, summarizing the measure and the $1,000,000 appropriation to the treasurer's office for contracting.

Supporters told the committee the measure aims to remove the persistent economic and health effects of medical debt. Representative Paige, the bill sponsor, said, "Medical debt can happen to any of us," and described both catastrophic bills and routine treatment costs such as fertility care that can produce burdensome balances. Becky Wasserman, Director of Financial Empowerment in the Treasurer's Office, said the $1 million investment could be used to abolish a much larger face value of debt: "The million dollars is expected to cover up to $100,000,000 worth of medical debt." She also described how the treasurer's office would hold funds, approve invoices from the contractor and oversee the administrative process.

Key provisions explained to the committee

- Eligibility: The bill would limit debt abolition to debtors who are Vermont residents and who either have household income at or below 400% of the federal poverty level for the household size or whose medical debt is 5% or more of household income. The transcript states those thresholds are part of the eligibility criteria but that some specific definitions (for example, of "Vermont resident") would be clarified in contract language.

- Financial-assistance disclosure and thresholds: The bill would require notification to individuals about the amount of debt abolished, the provider(s) whose debt was purchased, and the individual's estimated percentage of the federal poverty level. The legislative summary given to the committee notes minimum hospital financial-assistance discounts: a 100% discount for individuals with household income at or below 250% of the federal poverty level and at least a 40% discount for households between 250% and 400% of the federal poverty level.

- Credit-reporting prohibition and exceptions: Section 3 would add a prohibition in the Consumer Protection Act against credit reporting agencies reporting or maintaining medical-debt information. The measure also allows a 501(c)(3) tax‑exempt organization to obtain consumer credit information without the consumer's consent for the narrow purpose of determining eligibility for debt abolition, but it would not permit large health-care facilities (defined in the bill as hospitals, hospital-affiliated outpatient clinics, and ambulatory surgical centers) to use that exception to pull credit reports.

- Limits on sale and reporting of medical debt: The bill would amend existing patient financial assistance law to prevent large health-care facilities and medical-debt collectors from selling or furnishing medical-debt information to credit-reporting agencies, except that a large health-care facility may transfer debt to a tax-exempt organization for the explicit purpose of abolition under the program created in section 1.

How the program would work, as described to the committee

Treasurer's office staff described a voluntary negotiation model used by nonprofit organizations that purchase medical debt. A participating provider would share debt files with the contractor under confidentiality protections; the contractor would apply eligibility criteria, select portfolios it wishes to purchase, make an offer and, after purchase, abolish the debt and notify affected consumers. The transcript identifies Undue Medical Debt (referred to in the hearing as a national nonprofit that buys medical debt) as the typical contractor used in other jurisdictions. The contractor model described includes a roughly 10% administrative fee to the nonprofit for negotiation and notification work; the treasurer's office would hold appropriated funds and approve invoices for purchases.

Who would be affected and program scale

Treasurer's office testimony to the committee estimated roughly 60,000 to 65,000 Vermonters have medical debt that could be affected by the bill. Witnesses described the common market phenomenon that aged medical accounts often trade at a small fraction of face value (the testimony cited examples where providers might recover roughly 1% when debt is sold), which is why a relatively small appropriation can purchase a much larger face value of debt. The bill targets older debt (described in the hearing as debt aged about 18 months to 7 years, measured from the date of service).

Concerns and questions raised

Committee members pressed several policy and practical questions. Some members asked whether abolishing medical-debt reporting would reduce incentives for patients who can pay but choose not to, and whether removing medical debts from credit reports would make it harder for some borrowers to build a credit history. Committee members also queried whether purchased debts would primarily be written-off accounts or active collections and how state and federal tax rules might apply to providers or purchasers; staff responses emphasized hospitals in Vermont are generally nonprofit and that federal tax consequences for for-profit providers were outside the committee's expertise. The Consumer Financial Protection Bureau's (CFPB) now-contested federal rule on medical-debt reporting was discussed: committee staff said the federal rule is not a reliable protection at present and that state law would act as a "belt and suspenders" safeguard.

Provider reaction

Committee members reported outreach with local hospital leaders. Several committee members said their hospitals described the program as a positive outcome for patients and providers; one member said a local CEO viewed the proposal as "a win-win." Witnesses also said many large Vermont hospitals already do not report medical debt to credit agencies and operate patient-assistance programs, but the bill's prohibitions would offer additional protections for patients served outside those systems or by nonparticipating providers.

Next steps and committee action

Representative Paige told the committee the vote in the sponsoring committee had been "11" in favor (she stated "the vote was, 11"). The Appropriations committee scheduled a vote on the bill at 1:00 p.m. the same day.

Why it matters

Supporters told the committee the measure would reduce long-term financial and health harms tied to medical debt by removing outstanding balances from consumers' records and by alerting patients to hospital financial-assistance policies that may have reduced their liabilities. Fiscal office testimony and treasurer's office estimates presented to the committee framed the proposal as a one-time, retrospective program rather than an ongoing entitlement; sponsors emphasized the design is intended to avoid creating a future moral‑hazard incentive because the abolition is narrowly framed and the credit-reporting ban is prospective.

Remaining open questions

The committee's discussion left several contract and implementation questions for the treasurer's office and negotiators to resolve if the bill becomes law, including final definitions (for example, of "Vermont resident" in contracting), the detailed selection rules the contractor would apply, timing for negotiations, potential provider decisions about donating funds versus receiving payment, and whether the approximation that $1 million could abolish roughly $100 million in face value will hold in Vermont's market for aged medical debt.

The committee paused for lunch and planned to reconvene at 1:00 p.m. to take a formal vote on S.27.