A plan unveiled at the beginning of this month by Democratic Gov. Roy Cooper to leverage Medicaid funds to help North Carolinians struggling with medical debt has been approved by the federal government.

On Friday, the U.S. Centers for Medicare and Medicaid Services (CMS) approved a plan that has the potential to relieve $4 billion in existing hospital medical debt for people in the state, according to a news release. In order for the plan to take effect, hospitals would need to sign on.

“Unlike most other debts, medical debt is not intentional because people don’t choose to get seriously ill or have an accident,” Cooper said, according to the news release.

“Medical debts are often beyond people’s ability to pay, ruining their credit, keeping them from getting credit cards, loans and jobs and sometimes driving them into bankruptcy. That’s why we’re working with hospitals and federal partners to help relieve the burden of medical debt for North Carolina families,” he said.

Vice President Kamala Harris — who appears set to become the Democratic presidential nominee for the November election, and has been considering Cooper as a possible running mate — has been “coordinating” with state officials on the medical debt plan, The Washington Post reported.

“No one should be denied access to economic opportunity simply because they experienced a medical emergency,” Harris said in a statement sent as part of a news release Monday.

“Yet today, more than 100 million Americans struggle with medical debt — making it more difficult for them to be approved for a car loan, a home loan, or a small-business loan, which makes it more difficult for them to just get by, much less get ahead.”

“I applaud North Carolina for setting an example that other states can follow by advancing a plan that has the potential to relieve $4 billion in medical debt for two million individuals and families. This critical step also strengthens financial assistance for emergency medical procedures moving forward,” Harris said.

Harris wrote that over $650 million in medical debt had been forgiven through the American Rescue Plan, which was passed under the Biden administration.

The News & Observer has contacted several hospitals and the North Carolina Healthcare Association, which represents hospitals, regarding their stances on the plan.

UNC Health “continues to have discussions with state and federal officials,” UNC Health spokesperson Alan Wolf said in an email.

“We support efforts to reduce medical debt and we expect to receive more details on the approved plan soon,” he said.

Medical debt relief provided

According to Cooper’s news release, hospitals that opt in to the plan must implement the following to be eligible for enhanced payments offered under the plan:

• For those on Medicaid, relieve all unpaid medical debt dating back to Jan. 1, 2014.

• Relieve all unpaid medical debt that has become virtually impossible to collect dating back to Jan. 1, 2014, for people not enrolled in Medicaid whose income is at or below at least 350% of the federal poverty level (FPL) or whose total debt exceeds 5% of their annual income. A family of two at 350% of the FPL makes about $71,000 a year.

• Provide discounts on medical bills for people at or below 300% FPL.

• Automatically enroll people into financial assistance, known as charity care.

• Not sell medical debt of people making below 300% FPL to debt collectors.

• Not report debt covered by policies laid out in the plan to a credit reporting agency.

Patients of participating hospitals will not need to take any actions to benefit from medical debt relief, according to the news release.

Plan to leverage Medicaid funds

When the state expanded Medicaid in December, it implemented a mechanism that allowed hospitals to receive higher federal reimbursements in return for paying the state’s share of costs under the expansion bill.

The federal government covers 90% of Medicaid coverage costs for the expansion population, while the state covers 10%. This funding mechanism was called the Healthcare Access and Stabilization Program.

The medical debt relief plan further leverages federal funds by providing higher HASP payments to hospitals that choose to implement the plan.

Hospitals often only collect a small fraction of the medical debt they are owed, Cooper said during a press conference announcing the plan on July 1.

However, large debts that remain on the books can prevent people from buying a home or getting a credit card and sometimes can lead people into homelessness and bankruptcy, he said.

North Carolina has one of the highest percentages — 13.4% — of adults with medical debt, according to KFF, a health policy organization. About 20 million people — or nearly 1 in 12 adults — owe a combined total of at least $220 billion in medical debt in the United States, KFF says.