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Allison Sesso, Executive Director of RIP Medical Debt, joins Yahoo Finance to discuss on addressing medical debt and the U.S. health care system.
KRISTIN MYERS: I want to turn now to a charity that is spending hundreds of millions of dollars to wipe out the medical debt of more than 75,000 people. We're joined now by Allison Sesso, executive director of that aforementioned charity, RIP Medical Debt. So Allison, let's just start with how much of a problem medical debt is in the United States right now. And what kind of an anchor wait does it provide to those people that are indebted and to their families?
ALLISON SESSO: Yeah, medical debt is the number one cause of bankruptcy in the United States, which is something that's obviously uniquely an American problem. So we're out there, trying to give people relief from this economic burden. And we've got donors that are excited across the country to do more of this debt relief.
And you can see that number, 278 million. We're very proud of that. But we have a lot more debt relief ahead of us.
KRISTIN MYERS: So Allison, tell us exactly how this works with RIP. Are you buying up the debt from these hospitals on the secondary market for pennies on the dollar? How are you able to afford to do this?
ALLISON SESSO: Yeah, so that was our model. And we still do leverage that approach in which we buy the debt after it's been already sold to a for-profit commercial debt buyer. But this is big news right here. Today, we're talking about a deal that we closed, our first hospital deal direct.
So we bought the debt directly from the hospital, Ballad Health, which is based in Tennessee and Virginia. It's a huge hospital system. And we were able to help 82,000 people in that region that had debts that were over their heads.
What we do is we're able to buy debt for pennies on the dollar because of the way that the debt market, unfortunately, works. It's a way that they know that people can't pay. So the value of those debts, if they were to be sold to a for-profit debt buyer, are very little. So $1 can buy a $100 worth of debt that somebody owes.
So you don't actually have to spend all that much money to buy a whole lot of debt for people that the hospitals know can't pay those bills. And that's exactly how it works. It's a great return on investment. But it also, I think importantly, is a huge indicator that our health care financing system is very broken.
ALEXIS CHRISTOFOUROS: So to that point, Allison, because I was reading that a lot of the debt that people owe, they actually shouldn't owe in the first place, that they actually qualified for lower medical bills or actually not paying anything at all because of their financial circumstances. How is it then that so many Americans owe so much money when they don't have to, when there's programs in place that could take care of some of those bills?
ALLISON SESSO: Well, I would say that there's a lot of ways in which medical debt gets created. One of them is that people are underinsured. I mean, it's great news today that the ACA was upheld because that is one way of ensuring that people have the coverage that they need and don't end up with medical debt. However, increasingly, we're seeing people who are insured and still have medical debt because they can't meet their deductibles.
And the deductibles are just way too high. And so the medical debts we're relieving are people that are actually insured and did everything right. But economically, they're not able to meet the deductibles that their plans call for. So that's one way that people end up with medical debt.
There are a lot of programs out there that help people. And the charity care is something that nonprofit hospitals do have to provide in order to have that nonprofit status. And unfortunately, there's a lot of hospitals that make it difficult or traditionally haven't done a good enough job reaching out to people to let them know about charity care. And people fall through the cracks.
And that is why we end up having to clean up a lot of this. I will give a lot of credit to the hospital we worked with, Ballard health. If we look at the numbers, we believe that debt went back as far as 10 years old. But if you look at the numbers, moving up as they got closer to current day, the amount of people that fell through the cracks was decreased, which means that they've done a much better job, over time, to change their system and to improve the number of people that actually get the charity care that they deserve.
And we need to see more and more hospitals looking at their charity care and being proactive so that an organization like mine doesn't have to come along at the end tail of this and clean up the mess.
ALEXIS CHRISTOFOUROS: Now, I know that was big news for RIP to be able to work directly with a hospital. In this case, it's Ballad. I'd imagine you want to strike more deals directly with the hospitals. Can you share with US plans for how to make this program even bigger and impact more people?
ALLISON SESSO: Absolutely. We have donors that are very interested in what we do. And it's just a matter of getting our hands on that debt. So I call on hospitals to reach out to us. We're obviously up and running.
This deal demonstrates that this is a viable approach. We did get approval from the federal government to ensure that our model is OK in terms of passing the sniff tests in terms of regulations that hospitals deal with. So it is a perfectly good tool that hospitals should be using.
So I encourage hospitals to reach out to us. And I encourage donors to reach out to us. That's what this is about. It's about pairing the donors that are willing to support this with the hospitals that are ready to get this solution moved forward as well and making sure that we provide a lot of debt relief for all those individuals out there. And we see this as a support for economic recovery, especially after the pandemic.
KRISTIN MYERS: Allison, it is incredible work that you guys are doing at RIP. But it does still strike me as a Band-Aid on a really large and gaping wound, at least when it comes to dealing with hospital and medical expenses. What really needs to happen to make an organization like yours, frankly, obsolete because we don't have so many people struggling under medical debt?
ALLISON SESSO: Well, I will tell you, I'd be more than happy to find a new job. I am both simultaneously excited by the amazing help that we're able to provide to people and appalled that my help is needed every single day.
So what I think has to happen is we really need to look at our health care system, writ large and think about the financing part of it. Are people really insured in a way that they need to be? Why are we allowing people to have health insurance plans that they can't afford, meaning that the deductibles are clearly higher than what their income is and what their means are?
I liken it increasingly to the subprime mortgage situation that we were in in 2008. I mean, we're letting people have insurance plans that they can't afford and that don't meet their income level. So I think we need to take a hard look at that and build on the ACA to ensure that people walking into the hospital are truly covered and make sure that people across the board do have coverage to begin with.
KRISTIN MYERS: All right, Allison Sesso, executive director of RIP Medical Debt, thanks so much for joining us.