Quick Answer: Arizona has erased $642 million in medical debt for nearly 485,000 residents through a partnership with Undue Medical Debt, funded by $30 million in federal ARPA money. The state buys medical debt for pennies on the dollar and cancels it — no application needed. It’s the largest state-run medical debt relief program in history, with a goal of eliminating up to $2 billion.
How Arizona Is Buying and Canceling Medical Debt
Governor Katie Hobbs launched the “Affordable Arizona: Tackling Medical Debt for Working Families” initiative using American Rescue Plan Act funds. According to the Arizona Governor’s Office, the state partnered with the nonprofit Undue Medical Debt to purchase outstanding medical bills from hospitals and collection agencies — for pennies on the dollar — and then cancel them entirely.
The math is remarkable: It took approximately $1.7 million to erase $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 apply for this program. According to the Arizona Governor’s FAQ page, Undue Medical Debt identifies eligible accounts based on two criteria:
- Income below 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 earners may qualify if the bills are large enough
If you qualify, you’ll receive a branded letter from Undue Medical Debt notifying you that your debt has been canceled. That’s it. No paperwork, no phone calls, no catch.
The Daily Money Brief — Free, at 10 AM
Money you may be owed, scams to dodge, and the fine print decoded — the consumer money news that affects your wallet, every weekday.
Tax Implications: Unlike most forgiven debt, this won’t trigger a tax bill. Because Undue Medical Debt is a nonprofit “disinterested third party,” the cancellation doesn’t count as taxable income. You won’t receive a 1099-C, and you don’t need to report it.
Free Tool — 1099-C Tax Calculator: Received a 1099-C for cancelled debt? The free 1099-C Tax Calculator runs the exact IRS insolvency math from Publication 4681 Worksheet 2 — and covers the partial insolvency case most people miss. Run the Calculator →
The Bigger Picture: Medical Debt in America
Arizona isn’t alone. Several states are now using similar models to attack medical debt:
States Erasing Medical Debt
- Arizona — $642M erased, 485,000 people
- North Carolina — Erased debt for 2.5 million residents via hospital agreements
- New Jersey — $1.4 billion eliminated for 828,000 residents
- New York City — $2 billion targeted for 500,000+ residents
Why It’s Still a Problem
- 72 million Americans carry medical debt
- 15 million have medical bills on credit reports
- Black and Hispanic households hit hardest
- Most people don’t know these programs exist
According to the CFPB, Americans had an estimated $88 billion in medical bills on credit reports before recent credit bureau changes. That number has dropped as Equifax, Experian, and TransUnion stopped reporting paid medical collections and bills under $500 — but the underlying debt didn’t disappear. It just became invisible.
Why This Matters More Than You Think
Medical debt is the debt that proves my point about debt being what’s left when the math is broken. Nobody plans to get sick. Nobody budgets for a $40,000 emergency room visit. When the math breaks because of a medical crisis, the debt that follows isn’t a spending problem — it’s a system problem.
Medical debt is the perfect example of debt caused by something completely outside your control. Shaming someone for owing $30,000 after a car accident or cancer diagnosis is absurd. The math broke — and it wasn’t their fault.— Steve Rhode
That’s what makes these programs important. They acknowledge what we’ve been saying for years: sometimes the right answer isn’t “pay every dollar back.” Sometimes the right answer is forgiveness — because the debt should never have existed in the first place.
What If You Have Medical Debt Right Now?
If you’re carrying medical debt, here’s what actually matters:
- Check if your state has a relief 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 at AnnualCreditReport.com and dispute any 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 retirement — Never cash out a 401(k) to pay medical debt. That retirement money is protected from creditors in bankruptcy and compounds over time. The opportunity cost of raiding it is enormous.
- Consider ALL your options — If medical debt is overwhelming, bankruptcy may discharge it entirely while protecting your retirement and home. Don’t let shame prevent you from exploring the option that serves your future best.
Not Sure Where You Stand? Take the free Find Your Path quiz. It takes less than a minute and gives you a personalized starting point based on your actual situation — not generic advice about medical bills.
Free Tool — Judgment Proof Checker: Think creditors can take everything? Many people in financial hardship are legally protected. The free Judgment Proof Checker shows whether collectors can actually collect anything from you in your state. Check My Status →
Sources
- Arizona Governor’s Office — Official announcement of $642M medical debt relief program
- 12News (KPNX) — Program details, Undue Medical Debt partnership, and tax implications
- NPR — North Carolina medical debt erasure for 2.5 million residents
- CFPB — Medical debt on credit reports and $88 billion estimate
Frequently Asked Questions
How do I know if my medical debt was erased by Arizona’s program?
You’ll receive a branded letter from Undue Medical Debt in the mail notifying you that your specific medical debt has been canceled. There is no application process — the nonprofit identifies eligible accounts based on income and debt-to-income criteria. If you earn below 400% of the Federal Poverty Level or your medical debt exceeds 5% of your annual income, you may qualify.
Will forgiven medical debt affect my taxes?
No. Because Undue Medical Debt is a nonprofit “disinterested third party,” the cancellation doesn’t count as taxable income. You won’t receive a 1099-C form and don’t 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?
Since 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 delay from 180 days to one year. However, larger unpaid medical bills can still appear on your report. Check yours at AnnualCreditReport.com.
What 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 erase 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 website for current programs.
TL;DR: Arizona has erased $642 million in medical debt for 485,000 residents — and it’s aiming for $2 billion. No application needed. Multiple states are running similar programs. If you have medical debt, check your state for relief programs, know your credit report rights, negotiate before paying, protect your retirement, and consider all options including bankruptcy. Medical debt is the math breaking because of circumstances beyond your control — there’s no shame in getting help.
(Source: Arizona Governor’s Office / 12News / NPR / CFPB)
Dealing With Debt? Understanding your options is the first step. See how all your debt relief options compare — including ones most sites won’t tell you about. The Find Your Path quiz gives a recommendation based on your actual numbers, and the Scam-O-Meter checks any company’s complaint history before you sign. Federal Reserve research shows bankruptcy filers recover faster than those who don’t file.
