Act 21: VT’s $1MILLION Medical Debt Jubilee

State lawmakers approved a $1 million Vermont taxpayer-funded purchase of bad medical debt, a program expected to wipe out bills for only 10,000 to 15,000 Vermonters. Legislators, led by Senator Virginia “Ginny” Lyons (D – Chittenden-Southeast District), sold Act 21 (S.27) with a neat, poll-tested line: “A million dollars to abolish a hundred million in medical debt.” On paper, it sounds like a miracle — big leverage, a small appropriation, and thousands of Vermonters freed from the anxiety of overdue bills.

But dig into the mechanics and the story changes. Act 21 is not a structural fix to rising health care costs. It is a one-time program that leaves hospitals out, taxpayers lighter, and only a narrow subset of Vermonters eligible. There’s no minimum pass-through rate to guarantee how much of the $1 million actually reaches debt relief. That may also explain why lawmakers avoided a roll call vote that would have shown who supported the bill.

How the Law Works

Act 21 appropriates $1 million for fiscal year 2026. That money goes from the State Treasurer to a nonprofit debt buyer, which purchases old hospital accounts for pennies on the dollar and then cancels them. Patients who qualify — Vermont residents with incomes under 400 percent of the federal poverty line (FPL), or whose debt exceeds five percent of household income (with no income limit) — get letters saying their debt has been forgiven.

Hospitals, meanwhile, get pennies back on bills they had already written off. The law also bans medical debt from appearing on credit reports, and, curiously, folds in a definitional change to “behavioral health” that excludes mental health and substance use disorders — a separate policy fight shoved into a debt-relief bill.

Act 21 creates two separate eligibility gates — one based on federal poverty guidelines, and one based on a household’s debt-to-income ratio. The tables below show how each works in practice.

Act 21 FPL Income Eligibility Thresholds (2025)

Household Size	400% FPL Cutoff	VT Median Income (~$70k)	Eligible?
1 person	$60,240	$70,000	❌ Above cutoff
2 people	$81,760	$70,000	✅ Below cutoff
3 people	$103,280	$70,000	✅ Below cutoff
4 people	$124,800	$70,000	✅ Below cutoff
5 people	$146,320	$70,000	✅ Below cutoff
6 people	$167,840	$70,000	✅ Below cutoff

Act 21: 5% Debt-to-Income Rule (2025)

Household Income (any size)	Minimum Medical Debt to Qualify (5%)
$70,000 (VT Median Income)	$3,500
$100,000	$5,000
$200,000	$10,000
$300,000	$15,000
$400,000	$20,000
$500,000	$25,000
$1,000,000	$50,000

Hospitals’ Silent Loss

The missing piece in every committee hearing was the hospitals’ reality. Vermont hospitals swallow +/-$100 million a year in uncompensated care — a mix of bad debt and charity care. That means doctors, nurses, and facilities are providing services they’ll never be paid for.

Act 21 doesn’t plug that hole. Further, hospitals still must spend months sending bills, contracting collection agencies, and paying administrative overhead before an account even qualifies for the nonprofit buy-out. Then they get one or two cents on the dollar. The $1 million appropriation doesn’t restore hospital finances. It simply reimburses the nonprofit.

The only hospital lobbyist who testified — Devon Green of the Vermont Association of Hospitals and Health Systems — never pressed that point. Instead, she focused on regulatory costs and red tape. Lawmakers never heard the blunt reality that the “$100 million abolished” is really $100 million in services hospitals already provided and lost.

Residency Loopholes

The law requires beneficiaries to be “Vermont residents,” but state law defines residency simply as physical presence plus intent to remain. There is no durational requirement — not 30 days, six months, or a year.

In practice, that means someone can establish residency quickly, for example by registering at a homeless shelter or otherwise declaring Vermont as home. Any newly acquired medical bills would still have to move through the usual collections process before qualifying for relief, but the statute does not impose any waiting period. By contrast, divorce law requires six months of residence, and in-state tuition requires a year.

The result is a program that may extend debt relief to new arrivals who meet the criteria, while many long-time Vermonters with non-hospital debts — such as dentist bills, ambulance charges, or care received across state lines — remain outside the program’s scope.

Who Really Gets Help

The pool of beneficiaries is much narrower than the $100 million talking point suggests. Lawmakers didn’t appear to estimate how many Vermonters this would help. But, based on average hospital debt balances and what $1 million can buy on the secondary market, a reasonable figure is likely in the range of 10,000 to 15,000 Vermonters who would have their medical debt wiped clean. To qualify, debts must:

Originate from Vermont hospitals (“large facilities”);
Survive months of billing and failed collections;
Still be legally collectible when sold;
Belong to residents under 400% FPL or owing more than 5% of income.

That leaves out plenty of Vermonters with unpaid dental bills, ambulance charges, or accounts already sold to for-profit collectors. Most Vermonters — those living paycheck to paycheck with medical bills — won’t see a dime of relief.

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What the Law Ignores

Act 21 leaves untouched the way the debt market works: debt buyers purchase accounts for five cents on the dollar and then chase patients for the full face value. Vermont didn’t cap recovery at fifty or seventy-five cents. It didn’t block the serial reselling of the same account to multiple collectors. It only rerouted hospital debt into a nonprofit pipeline.

There’s also the tax angle. If a for-profit collector bought the same debt and made a profit, that profit would be taxable. By forcing sales only to nonprofits, Vermont takes those transactions out of the taxable economy. The state spends $1 million, hospitals still lose $100 million, and the IRS and Vermont tax coffers both see less revenue.

Hospitals, meanwhile, still have to pay more than $2 million a year to fund the Green Mountain Care Board, their regulator. Act 21 didn’t touch that obligation.

Alternatives That Would Make More Sense

If lawmakers really wanted to help both patients and providers, they had cleaner options:

Direct hospital relief: Send $1 million to hospitals tied to charity write-offs. Patients would still get debt forgiveness, but hospitals would also regain operating dollars.
Cut the GMCB bill-back: Reduce hospitals’ $2 million regulatory tax by $1 million, freeing cash to cover uncompensated care.
Cap debt buyer collections: Limit recoveries to fifty cents on the dollar, ending the nickel-to-a-dollar racket.
Faster relief: Let hospitals flag hardship cases immediately instead of wasting time and money on collections.
Not spending the $1,000,000 in the first place. (as many taxpayers would argue)

Each would have delivered more lasting value than paying a nonprofit middleman.

The One-Time Band-Aid

Act 21 is written as a one-time appropriation for fiscal 2026. But there’s no sunset clause, no guardrail, and no one in testimony promised this would never return.

Other states show the likely path. Rhode Island started with a $1 million pilot and is already talking renewal. Connecticut launched with $6.5 million in federal funds and built a multi-year program. Once the infrastructure exists, nonprofits will lobby to keep it funded. Legislators will enjoy handing out letters of relief as political capital.

A “one-time” million can easily become an annual line item, doubling and redoubling as pressure builds.

The Bottom Line

Yes, Act 21 will bring real relief to some Vermonters. A few thousand will get letters saying their debts are gone. Their credit reports will be cleaner, their anxiety lighter.

But for the rest, hospitals still absorb more than $100 million annually, taxpayers cover $1 million, insured Vermonters pay higher premiums, and the state loses tax revenue. In the end, Act 21 amounts to a one-time charity for some, while the system that makes care unaffordable remains the same.

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Dave Soulia | FYIVT

#fyivt #ItsOnlyMoney #TaxpayerFunds #HealthCareCosts

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