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Connecticut to wipe out $1B in medical debt

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(The Center Square) — Connecticut Gov. Ned Lamont plans to cancel up to $1 billion in medical debt for hundreds of thousands of residents, making it the first state to take the step.

Lamont made the announcement Friday during an appearance on ABC News, saying the plans call for leveraging $6.5 million in American Rescue Plan Act funds the state has received to wipe out the medical debt held by about 250,000 residents who meet the basic income qualifications.

“This is not something they did where they were spending too much money,” Lamont told Good Morning America. “This is because they got hit with a medical emergency, and they should not have to suffer twice: first for the illness, then with the debt.”

Under the plan, households will receive letters notifying them they are eligible for the relief. To qualify, their medical debt must equal 5% or more of their annual income, or if their annual income is under 400% of the federal poverty line, Lamont said. That’s about $125,000 a year for a family of four, the Lamont administration said.

Residents who have their debt cleared also won’t have an added tax burden because the state and the Internal Revenue Service don’t count medical debt canceled through nonprofits as taxable income.

Lamont said the debt reduction plan would help struggling families in a state where around one in 10 residents have medical debt.

“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.”

If Lamont follows through on the plans, Connecticut would be the first state to do so. Several U.S. cities, including New York City, New Orleans and Pittsburgh, have announced similar plans.

New York City Mayor Eric Adams announced last month that the city will eliminate more than $2 billion in medical debt for up to 500,000 residents over the next three years.

New Jersey Gov. Phil Murphy included $10 million in its most recent budget proposal to fund a pilot program to cancel residents’ medical debt. He has called on lawmakers to approve it.

Nationally, an estimated 19% of American households have medical debt, with a median of $2,000 owed, according to data from the U.S. Census Bureau.

In 2022, the three largest credit reporting agencies announced they would eliminate nearly 70% of medical debt from credit reports amid pressure to ease the impact on consumers. The move eliminated billions of dollars of debt from consumer records.

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