State lawmakers this year quietly approved a plan to abolish tens of millions of dollars in medical debt owed by Hawaiʻi residents in what may be one of the most unheralded but far-reaching bills of the 2026 legislative session.

The target of the ambitious scheme is a strange, sad corner of the American health care system where medical debt — much of it deemed to be uncollectible — is bought and sold for pennies on the dollar.

State Sen. Chris Lee, the bill’s lead sponsor, said an estimated 150,000 people in Hawaiʻi are currently saddled with medical debt such as overdue hospital charges, much of which they may never be able to pay off.

“For them it’s got to be an incredible frustration, ” he said, “because it impacts their credit, their ability to pay for a house or a car, even their ability to just live a normal life without the financial stress that something like that places upon a family.”

Senate Bill 3025 would appropriate $500,000 in state funds to contract with a nonprofit that acquires large sums of medical debt, and then cancels it.

The $500,000 appropriated by lawmakers can be used to improve the financial straits of about 50,000 people in Hawaiʻi by relieving them of at least $50 million in collective medical debt, said Allison Sesso, president and CEO of New York-based Undue Medical Debt. She said hers is the only nonprofit doing that work.

If that sounds like astonishing impact for a relatively modest sum, Sesso said that’s because Undue can buy the medical debt for a tiny fraction of its face value from hospitals, ambulance companies, medical groups and secondary markets that deal in debt.

“It speaks to the brokenness of the way we finance health care… and the expectation of what a patient has to pay and what they can actually pay are far apart and growing,” she said.

Undue Medical Debt reports it already has eliminated nearly $40 million in medical debt in Hawaiʻi with financing from a mix of individual donors and foundations. The Queen’s Health Systems confirmed it is among the local health care providers that participated.

Formerly known as RIP Medical Debt, Undue was founded in 2014 by debt collection executives Jerry Ashton and Craig Antico with longtime health care executive Robert Goff.

Hefty Bills, No Savings

A KFF Health Care Debt Survey published in 2022 found 41% of U.S. adults had some level of medical debt at that time. KFF policy analyst Matthew McGough told Civil Beat it is “an issue that’s really boiling under the surface, and is a lot more pervasive than many people might realize.”

KFF estimated in a separate analysis based on U.S. census data that Americans owe at least $220 billion in medical debt, and McGough said a large portion of that is burdening people who owe more than $10,000. KFF is a nonpartisan health policy research, polling and news organization.

That situation is aggravated across the country by high-deductible health plans that require people to pay thousands of dollars before health insurers pay anything. McGough said many cannot afford those high deductibles, and “a lot of people are kind of one medical emergency away from falling into medical debt.”

Nearly 40% of Americans have less than $500 in savings, Sesso said, which means many people simply cannot pay an unexpected medical bill of between $2,000 and $5,000.

Lawmakers were told in a series of hearings on SB 3025 this year that medical bills are unlike money owed on credit cards or missed car payments because people don’t choose to take on medical debt.

Matthew Prellberg, policy and communications director for the local nonprofit Holomua Collaborative, reminded legislators that people who are injured or become ill aren’t warned in advance how much their health care will cost them. Holomua advocates for policies that make Hawaiʻi more affordable for residents.

When consumers can’t pay big medical bills, Sesso said, many health care providers sell the debt on a secondary market for pennies on the dollar in an effort to get back at least some of the money owed to them. Not all health care providers sell those debts, but many do.

Traditionally it has been private debt collection specialists who buy up that medical debt at a fraction of its original face value. Even if much of the debt they buy is uncollectible, debt collectors can profit if they get just some people to pay a portion of what is owed.

Undue Medical Debt takes full advantage of that secondary market by buying debt with the aim of canceling it, Sesso said. The cost varies, but on average she said Undue can acquire medical debt at a rate of $1 per $100 in debt. The older the debt, the lower the price.

Who Would Qualify For Relief

People qualify to have their medical debt canceled by Undue if their earnings fall at or below 400% of the poverty level — which works out to about $100,000 for a family of three — or they have medical debt that is 5% or more of their annual income.

There is no application process to have debt canceled, Sesso said. Undue simply sends out letters to qualified debtors to tell them their medical bills have been canceled, and they are in the clear.

Undue purchases medical debt with money it raises not just from from private donations and philanthropies but through its partnerships with 28 state and city governments. Its current mainland government partners include New York City, the state of Delaware, Lexington-Fayette County in Kentucky, and Cook County, Illinois.

If Gov. Josh Green signs SB 3025 into law, it would authorize the state Office of Wellness and Resilience to award a contract for the Hawaiʻi medical debt initiative without going through the regular state procurement process. Sesso said Undue’s government contracts are all sourced directly to them because it has no competitors.

“It’s very well documented that we’re the only entity that does this model, and is able to do this work,” she said.

Lee said a no-bid contract for Undue makes sense because the nonprofit has already invested significant time and its own resources preparing for the debt relief initiative in Hawaiʻi.

“They’re the ones that have done all the work with our Hawaiʻi people,” he said.

Green declined a request for an interview on the bill, but Director of Communications Makana McClellan said in a written statement that the governor, who also is a doctor, “has seen firsthand the crushing impact of medical debt on our residents and greatly appreciates efforts to ease this burden.”

McClellan stopped short of saying the Green would sign the bill, however. The written statement said only that he will carefully review the measure, and decisions on this and other bills “will be released at the appropriate time.” July 15 is the deadline for Green to sign, veto bills this year or allow bills to become law without his signature.

Civil Beat’s reporting on economic inequality is supported by the Hawaiʻi Community Foundation as part of its work to build equity for all through the CHANGE Framework; and by the Cooke Foundation.