In a few months’ time, hundreds of New Orleans residents will receive yellow envelopes from a company called RIP Medical Debt. The envelopes will tell them that their medical debt has been forgiven, no strings attached, thanks to their neighbors.

In an effort that is becoming increasingly popular among charitable organizations, New Orleans resident Erin Potts, a nonprofit consultant and entrepreneur, paired with RIP Medical Debt last year to raise money to wipe out old medical debt here after reading about a similar endeavor in New York.

RIP Medical Debt, a nonprofit started by two former debt collectors, purchases old debt for pennies on the dollar, then forgives it at no cost to the former patients. When Potts started researching through the organization’s website, she realized the problem in Louisiana is especially dire.

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“They had a map of the U.S. and you could see the medical debt per capita,” Potts, who lives in the Bywater neighborhood, said. “Louisiana is No. 1.”

On a map of medical debt shaded from light to dark, Louisiana is almost entirely blacked out. Nationally, about 16% of residents have medical debt in collections, according to data from the Census Bureau and a sample of five million records from a major credit bureau.

In Louisiana, that number rises to 27%, according to the Urban Institute, a think tank that does research on economic policy. In New Orleans, the amount is slightly lower ⁠— 19%. And communities of color are disproportionately affected at 22%.

Potts called the nonprofit and found out Orleans Parish residents were carrying around $1.9 million of medical debt that met the organization's requirements for purchase. The cost for RIP Medical Debt to buy it off debt collectors, however, was much cheaper: just $19,000.

Comparatively, “it didn’t sound like a lot of money,” said Potts. Besides, it felt like New Orleans deserved a break, she reasoned.

“Katrina, the BP oil spill, the Saints losing because of bad calls … If we raise $19,000, we can get some wins up on the board, so to speak,” Potts said. She reached out to people in the medical community, organized a bake sale with her kids and raised all of the money ⁠— plus a few hundred dollars extra ⁠— by the end of 2019.

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On average, just $32.87 forgives a family's debt, according to RIP Medical Debt. Using that figure, the $19,600 raised could pay off the debt of almost 600 people in New Orleans.

“My hope is that it will be forgiven just before Mardi Gras,” said Potts. “Then they’ll be able to just sort of get back to life and get on with their lives.”

Not all debt is eligible for RIP Medical Debt to buy. The nonprofit focuses on bills of people who can’t afford to pay: those who make up to twice the poverty level (about $25,000 for an individual or $51,500 for a family of four), those who owe more than 5% of their income and those whose debt exceeds their assets.

When a collector buys debt from a hospital, it is with the understanding that only some people with outstanding bills will pay them. So RIP Medical Debt waits until the debt is a few years old, then negotiates a price with the collector.

“We’re going to each debt buyer and saying, ‘We don’t want you to be calling up all these people. … So why don’t we pay you what it’s worth and pay you right now?’” said Craig Antico, one of the founders of RIP Medical Debt. “They might be just collecting another 2%. They’re going to have to call up 90% of the people to get that.”

About $450 billion in unpaid medical bills go to collections agencies every year in the U.S., said Antico. About 80% of that belongs to people who simply cannot afford to pay it.

RIP Medical Debt buys debt for about $1 for every $100 of debt. The same deal is not offered to patients by the hospital before the bill is sent to collection, in part because debt collection depends on at least some of the debtors making payments, said Antico. If all hospitals offered patients the opportunity to pay just 5% of their bill, those who would have paid all of it would pay only that percentage, he said, and others would still pay nothing at all.

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Bankruptcy lawyers are seeing an upward trend of both hospitals and individuals filing claims for bankruptcy due to medical debt. About two-thirds of people who file for bankruptcy say medical issues were a key contributor, according to a 2019 study published in the American Journal of Public Health.

"It’s a tough situation," said Laura Ashley, a New Orleans bankruptcy attorney at Jones Walker. "It's frustrating for a lot of families. You think you're covered, but you're not."

The average amount of a person's medical debt sent to collections in New Orleans is about $700. It might not sound staggering, but many patients in fragile financial situations are just one X-ray or biopsy away from debt.

Medical providers in New Orleans made up a large portion of the fundraisers. Jason Halperin, a doctor at Crescent Care Clinic and longtime friend of Potts’, organized a "cookies and cocktails" party at his home after seeing firsthand how medical debt affects both patients' wallets and their health.

Last week a patient came in with a large chest abscess that had become infected, said Halperin. He recommended surgical drainage, but the patient refused to go to the ER.

“[The patient] was trying to YouTube home-based incisions out of an absolute fear of going to the emergency room," he said. "Every single day I see patients who will defer what is recommended due to cost."

Medicaid expansion implemented in Louisiana in 2016 helped about 460,000 more people get complete coverage, making strides in warding off future medical debt for the state's lowest-income residents. But Halperin, who works at a clinic that receives federal funds to make care more affordable, still sees patients for whom one unexpected medical bill can lead to bankruptcy.

"I've had professionals in management, in academia, who look at me with tears running down their face who say, 'I can't pay my mortgage if I have to pay this medical bill,'" said Halperin. "That’s the reality we're living in right now."

Medical bills often surprise people who have insurance but with high deductibles and out-of-pocket costs. Doctors are not trained to select procedures based on how an insurance company might pay for it.

Halperin knows patients who leave the hospital directly after giving birth in order to avoid incurring another day of costs and patients with existing conditions who will forgo preventative checkups because they can't afford a $180 co-pay on an X-ray.

“I understand physical health," said Halperin. "I have no ability to understand financial implications of decisions I’m making. It is so overwhelming and emotional for me to think patients I interact with or recommend treatments for might be left with medical bills that can push them into financial ruin,” he said.