Senate committee hears bill to spend $1M to buy and abolish medical debt, bar reporting to credit bureaus

Senate Health and Welfare opened its Feb. 12 hearing on S.27, legislation that would appropriate $1,000,000 to the state treasurer for contracting with a nonprofit to acquire and abolish qualifying medical debt for Vermonters and add a state prohibition on reporting medical debt to consumer credit agencies.

Jennifer Carvey of the Office of Legislative Counsel read the bill’s provisions for the committee: “This is S.27 … an act relating to medical debt relief and excluding medical debt from credit reports. It starts off with a section appropriating $1,000,000 to the state treasurer … for the purpose of contracting with a nonprofit entity to acquire and repay certain medical debts to be verified Vermont residents as set forth in this section.”

The bill sets two eligibility paths: a household income at or below 400 percent of the federal poverty level for the household size, or medical debt equal to 5 percent or more of household income, and requires that the patient account still shows an outstanding balance after routine collection efforts. The proposed contract would require the treasurer’s contractor to buy medical debt at fair market value from health care providers, abolish the debt with no tax consequences for the debtor, and coordinate with providers and collectors to ensure adverse information is removed from credit reports following purchase and abolition.

State Treasurer Mike Pieciak described how his office would administer the contract and the funding source. “For the record, Mike Pieciak, state treasurer,” he told the committee. He said the $1,000,000 could be taken from an existing trust the treasurer has held to redeem general obligation debt prior to maturity and that his office would manage the procurement, oversight and invoicing for any nonprofit contractor the treasurer selects.

Treasury and bill supporters described the nonprofit RIP Medical Debt (referenced in testimony as the organization working in many states) as the likely vendor; witnesses said that nonprofit typically negotiates with hospitals, purchases older unpaid accounts, then cancels the debt and notifies patients. Treasury staff and witnesses said the contractor usually charges about 10 percent of the purchase as an administrative fee and that organizations running similar programs report roughly a 100:1 ratio of face value eliminated per dollar spent.

Advocates framed the bill as relief for financial stress and access to care. Brittany Davis of the Leukemia & Lymphoma Society told the committee that the cost of treating serious illnesses can be catastrophic and that national polling supports state action; she urged passage of the bill. “When patients can’t afford their medical treatment, how do outcomes improve?” she said in testimony supporting S.27.

A representative of PRA Group, a publicly traded purchaser of consumer receivables, cautioned the committee that the statutory definition of “medical debt” in Vermont law is broad and could unintentionally encompass nonmedical balances when those balances are carried on the same credit card account as a medical charge. Francie Whalen of PRA urged the committee to consider the Consumer Financial Protection Bureau’s definition — which ties the debt to an entity whose primary business is providing medical services — as a narrower alternative for statutory language.

Committee members asked detailed questions about how eligibility would be verified, how hospitals would be approached, when money would change hands and how notices to individuals would be handled. Treasury staff said the contractor would typically receive a hospital’s debt file, perform a “soft” credit inquiry and income checks to identify eligible individuals, make an offer to purchase a block of accounts, and invoice the state for the purchase plus administrative fees; the treasurer’s office would pay invoices from its trust fund and the contractor would handle sending notices to affected Vermonters.

Witnesses offered program-scale estimates. Treasury staff and proponents cited an estimate that roughly 60,000 Vermonters would qualify under the bill’s criteria and that approximately $100 million of Vermont medical debt could fall into the eligible age-and-size window (roughly 18 months to seven years old and meeting the income or 5 percent-of-income test). The bill proposes a one‑time appropriation; testimony noted the $1,000,000 figure could be adjusted later depending on negotiations and participation by hospitals.

Several speakers urged that Vermont adopt a statutory prohibition on reporting medical debt even if federal rules change. Carvey told the committee the bill would add a prohibition to the relevant patient financial assistance chapter and a separate amendment that would bar large health care facilities and medical‑debt collectors from furnishing medical‑debt information to credit reporting agencies. Committee counsel said the state provision would mirror recent federal action but preserve the prohibition if federal enforcement were to be weakened.

Senators and witnesses also discussed potential concerns: whether hospitals would record payments as unrestricted income, whether any recovered funds could be redirected to patient assistance, and how donations or hospital decisions to forgive debt without sale would be handled. PRA Group flagged the need for a clear statutory definition to avoid unintentionally insulating non‑medical consumer debt from reporting rules.

No formal committee vote occurred during the hearing; the bill is at the committee’s initial review stage and the treasurer’s office and legal counsel told senators they would continue to consult with providers and stakeholders as the committee drafts any final language.

The committee heard additional supportive testimony from patient‑advocacy groups and from the treasurer’s office; it also received written materials from other states that have implemented similar state‑level programs and from national consumer‑finance regulators.

If the committee advances S.27, the statute would: appropriate $1,000,000 for a treasurer contract to purchase and abolish qualifying medical debt; add a state prohibition on reporting medical debt to credit bureaus; and permit large hospital facilities to sell medical debt only to a 501(c)(3) organization for the purpose of abolition. A treasurer‑administered contract and a procurement process would be required before any funds are spent.

Senate Health and Welfare did not adopt or reject the bill at the Feb. 12 session; committee members said they would continue to gather information on procurement, eligibility verification and provider participation in the weeks ahead.