Arizona wipes out $642 million in medical debt for 485,000 residents

How Arizona Buys and Cancels Medical Debt

Governor Katie Hobbs launched the “Affordable Arizona: Tackling Medical Debt for Working Families” initiative using funds from the American Rescue Plan Act. According to the Arizona Governor’s Officethe state worked with the nonprofit Undue Medical Debt to buy up outstanding medical bills from hospitals and collection agencies — for pennies on the dollar — and then cancel them entirely.

The calculation is remarkable: It took about $1.7 million to wipe out $429 million in the first round. That’s less than half a cent per dollar of debt eliminated.

No application required, but there’s a catch

Here’s the part that surprises most people: you can’t sign up for this program. According to the Arizona Governor’s FAQ pageBad medical debt identifies eligible bills based on two criteria:

• Income less than 400% of the federal poverty level – That’s $124,800 for a family of four in 2025
• Medical debt exceeds 5% of annual income — Even higher income earners can qualify if the accounts are large enough

If you qualify, you will receive a letter from Undue Medical Debt informing you that your debt has been forgiven. That’s it. No paperwork, no phone calls, no catch.

The bigger picture: medical debt in America

Arizona is not alone. Several states are now using similar models to address medical debt:

According to the CFPBBefore the recent changes to the credit bureau, Americans had an estimated $88 billion in medical bills on credit reports. That number dropped because Equifax, Experian and TransUnion stopped reporting paid medical collections and bills under $500, but the underlying debt didn’t go away. It just became invisible.

Why this is more important than you think

Medical debt is the debt that proves my point that debt is all that’s left when the math isn’t right. No one plans to get sick. No one has a budget for a $40,000 emergency room visit. If the math fails because of a medical crisis, the debt that follows is not a spending problem; it’s a system problem.

Medical debt is the perfect example of debt caused by something completely beyond your control. Shaming someone for owing $30,000 after a car accident or cancer diagnosis is absurd. The math failed – and it wasn’t their fault.–Steve Rhode

That makes these programs important. They recognize what we’ve been saying for years: sometimes the right answer isn’t “pay back every dollar.” Sometimes the right answer is forgiveness – because the guilt should never have existed in the first place.

What if you currently have medical debt?

If you have medical debt, here’s what really matters:

• Check to see if your state has an assistance program – Arizona, North Carolina, New Jersey, New York, Connecticut and others have active programs. Search “[your state] medical debt relief” to find out.
• Know your credit report rights – Medical bills under $500 and paid medical collections no longer appear on credit reports. Pull yours to AnnualCreditReport.com and challenges everything that shouldn’t be there.
• Negotiate before you pay — Hospitals routinely write off medical debt or offer charity care. Ask about financial hardship programs before putting anything on a credit card or payment plan.
• Don’t touch your pension — Never cash out a 401(k) to pay for medical debt. That pension money is protected from creditors in bankruptcies and debts over time. The opportunity cost of plundering it is enormous.
• Consider ALL your options — If medical debt is overwhelming, bankruptcy can completely discharge it while protecting your retirement and home. Don’t let shame stop you from exploring the option that best suits your future.

Sources

• Arizona Governor’s Office – Official announcement of a $642 million medical debt relief program
• 12News (KPNX) – Program details, partnership for unnecessary medical debt and tax implications
• NPR – Eradication of medical debt in North Carolina for 2.5 million residents
• CFPB – Medical debt on credit reports and estimated at $88 billion

Frequently asked questions

How do I know if my medical debt has been forgiven by Arizona’s program?

You will receive a brand letter in the mail from Undue Medical Debt informing you that your specific medical debt has been forgiven. There is no application process: the nonprofit identifies eligible accounts based on income and debt-to-income criteria. If you earn less than 400% of the federal poverty level or if your medical debt is more than 5% of your annual income, you may qualify.

Does Forgiven Medical Debt Affect My Taxes?

No. Because Undue Medical Debt is a non-profit “disinterested third party,” the cancellation does not count as taxable income. You will not receive a 1099-C form and do not need to report it. This applies to all debt relief through Undue Medical Debt’s government partnership programs.

Does Medical Debt Still Appear on Credit Reports?

As of 2022, the three major credit bureaus – Equifax, Experian and TransUnion – no longer report medical bills under $500 or paid medical collections. They also increased the reporting period from 180 days to one year. However, larger unpaid medical bills may still appear on your report. Check yours at AnnualCreditReport.com.

Which states have medical debt relief programs?

Arizona, North Carolina, New Jersey, New York City, Connecticut and several other states and cities have partnered with Undue Medical Debt (formerly RIP Medical Debt) to clear medical bills. The programs vary in size, with Arizona targeting $2 billion and North Carolina reaching 2.5 million residents. Search your state’s governor’s website for current programs.

(Source: Arizona Governor’s Office / 12News / NPR / CFPB)