When Amsterdam-based file-sharing giant WeTransfer opened a U.S. headquarters in Los Angeles a few years ago, one of the first things president Damian Bradfield noticed was the homelessness. It’s a problem that’s continued to get worse in Los Angeles County. There are now reportedly 59,000 people living on the streets, a 12% increase over last year. Of course, that’s partly because of increasing rents and evictions from big tech gentrification from companies like WeTransfer, but Bradfield wanted to be part of the solution, so his team started researching what actions they might be able to take immediately to help some of the people in the area.
Unlike in the company’s home country of the Netherlands, which has socialized medicine, people who are poor or have no insurance in the United States can encounter a health emergency that causes piles of bills and eventually bankrupts them. The process creates a vicious cycle: People are pressured into making payments they can’t afford, while their credit score is destroyed for defaulting, all of which makes it even harder to get fair loans, apartments, and bank accounts. Just in the city of Los Angeles, people have an estimated $35 million in medical debt that’s being sought after by debt collectors.
“The more we dived into it, the more we could see that medical debt is one of the biggest instigators of homelessness,” Bradfield says. So WeTransfer, meditation app company Headspace, and several other local companies and philanthropists have teamed with the nonprofit RIP Medical Debt to pay off virtually all of it. The effort will wipe out a combined $30 million in medical debt for L.A. city residents in need.
One weird effect of our system of debt and collection is that it won’t cost $30 million to do. Once a hospital or healthcare provider can’t collect funds, they sell the outstanding debt to a collection agency for less than it’s worth, which tries to pressure people into paying some portion of their bill. If that agency can’t get all of the outstanding money, they simply bundle a bunch of debts together and resell them to another company that might have different tactics (which are often unscrupulous or straight-up illegal) or wants to try their luck.
Eventually, these bundles are available at a super low rate for other debt buyers, who could abolish or forgive the debt entirely if they weren’t interested in making a profit. RIP Medical Debt does that by relying primarily on grassroots donations to fund its mission. Buying $30 million worth of debt will only cost WeTransfer $300,000.
RIP Medical Debt grew out of the Occupy Wall Street protests against economic inequality in 2011. During that time, eventual cofounders Craig Antico and Jerry Ashton, both traditional debt collectors, helped activists crowdfund a similar concept dubbed Rolling Jubilee. It raised more than $700,000 to pay off nearly $32 million in various forms of debt before the organizers regeared it to focus exclusively on student loans.
In 2014, Antico and Ashton teamed up to create a formal nonprofit to focus on using donations to buy and forgive medical debt. They’ve since worked with different companies and community organizers (and John Oliver) to pay off more than $700 million in medical debt. They hope to reach the $1 billion mark this year.
In Los Angeles, RIP Medical Debt estimates that WeTransfer’s donation will clear the slate for about 16,000 people. To select the beneficiaries, the organization has worked with credit bureaus to identify people making less than 200% of the federal poverty level (about $25,000 or less) or who are paying more than 5% of their gross income per year to medical expenses.
“For all of the people who are living in L.A. with medical debt on the secondary market, we’re actually going to eliminate almost all of it through this campaign,” says Scott Gannon Patton, RIP’s director of development. “RIP Medical Debt functions in the secondary debt market just as any other debt buyer would. But of course our endgame is to actually just to stop that cycle so that the Americans who are suffering with that burden can actually regain a firmer financial footing and rebuild their lives.”
There’s no specific timeframe for when all of this debt will be formally abolished. However, RIP estimates it typically takes no more than six months to complete such transactions. The group notifies those whose debt it’s abolishing by mail with a letter showing the account they’ve secured and amount forgiven. It also notifies credit bureaus that these debts have been fully paid, although it takes another several months to see individual credit scores bounce back.
It’s certainly not a full solution: those that miss the cutoff because they make too much will still have to figure things out. And there are also many more people on the brink: this forgiveness doesn’t apply to the larger share of people who still owe bills that have yet to be handed over to debt chasers. Overall, the U.S. has a combined $1 trillion in unpaid medical bills, and only about $4 to $6 billion of that can be addressed with RIP’s current tactics.
Bradfield calls this a “low-maintenance” but “high impact” strategy that other companies should consider, especially because the return per dollar is so easy to calculate. “As an organization, it’s not sustainable for us to go out and fulfill some of the other needs that the homeless have, perhaps in supplying portable toilets or cleaning facilities or anything else,” he says. That’s not to say those interventions aren’t valid—they just address other parts of the issue.
WeTransfer developed the solution in tandem with public officials, community leaders, and local cause groups. They intentionally recruited other donors from the community to form what’s essentially a task force that can now talk about what’s next and how to implement it. The group has also shared its own general theory about how to make direct, actionable change in a report called “On Companies and Communities” that it hopes other companies might use.
“This is the exact kind of corporate community campaign that I think is most effective,” adds RIP Medical Debt’s Gannon Patton. Eventually, he hopes to convince philanthropists to tackle the non-discounted debt at the hospital and medical care provider level, although it’s unclear how that would look or work. More obviously, RIP Medical Debt would like to see healthcare providers forgive debts for those who obviously can’t pay as their own form of in-house charity. Given the health issues that homeless people go on to face once they lose their homes, it might reward both the people and the system in the long run.