Anabel Peterman, Equitable Cities Reporting Fellow with CivicLex and Next City, breaks down how that program uses $1 million of municipal funds to forgive $90 million in medical debt for residents of Lexington and Fayette County.
Interview transcript has been edited for length and clarity.
Clay Wallace, WUKY
This week, you wrote about the city of Lexington's partnership with nonprofit Undue Medical Debt. How does that program work?
Anabel Peterman, Equitable Cities Reporting Fellow with CivicLex and Next City
Undue Medical Debt is a program that's been going for over ten years. They work with debt collection agencies, hospitals, any entity that's harboring medical debt, and buy it for pennies off the dollar, the same way that debt collectors do. Like debt collectors, they buy the debt for a fraction of what it's actually worth. Unlike debt collectors, instead of making the person in debt pay it, they abolish it.
Clay
What does the city of Lexington contribute to this partnership? And how much medical debt will be forgiven through it?
Anabel
The city of Lexington is in a municipal partnership with Undue Medical Debt. Most of these municipal partnerships have been working with ARPA funds. LFUCG didn't do that; they took the interest that they gained off the ARPA funds once they spent them and entered into a $1 million contract with Undue.
The goal is to wipe a total of $90 million in medical debt for Fayette County residents.
Clay
What qualifies someone to have their medical debt forgiven?
Anabel
I'll start with: there is no application process. You can't apply, and if you haven't applied - don't worry, you're not supposed to.
To qualify to have your debt erased, one of two things needs to be true. Either you are in a household that makes a total of 400% or lower of the federal poverty line - in Kentucky, for a one-person household, that's about $62,000 - or your medical debt total needs to be at least 5% of your household income.
Say you are a single-person household in Lexington that makes $100,000. If you have more than $5,000 of medical debt, that counts.
And, of course, because city funds are being used on this partnership, you must be a resident of Lexington, Fayette County.
But Undue Medical Debt does work across the state and country.
Clay
They're a national nonprofit.
Anabel
Yes, and this isn't the first time that something like this has been done in Kentucky.
While it's the first time a municipal partnership, a partnership with the city-county government, is happening in the state, there are programs like Kentucky Voices for Health and other nonprofits that have individually partnered with Undue to wipe medical debt for people in their communities.
Clay
And, the way this works... It's not targeted to the individual. Undue Medical Debt is buying up debts that would've gone to a collections agency, right?
Anabel
Yes. Big, big chunks at once. But, again, individual debts have to meet those requirements. That's why they announce it in waves.
The first wave was over $12 million, and the second wave was over $5 million, totaling more than $18 million of debt wiped in these first two waves.
Clay
And more debt will be forgiven through this program over the next three years. You spoke with someone whose medical debt was forgiven in that first wave. How was she made aware that her debt had been erased?
Anabel
Those are coming out in letters. There are no telecommunications about it, no emails, you will just get a letter.
Also keep in mind your old addresses; she got a letter at her mom's place because she had recently moved. She opened it up, it says: You've been wiped of this amount of medical debt, this is the provider that had the medical debt, you do not have to do anything else, it's done.
Clay
When this was first proposed, there was some disagreement in Lexington city government about whether or not they wanted to pursue this partnership and put municipal dollars toward this nonprofit. Can you tell me a little bit about what that disagreement was?
Anabel
It's really been a numbers game, I think. There's been disagreement about the overhead fees for the nonprofit.
Undue Medical Debt holds an indirect cost rate of 15%. This is for things like overhead, keeping the lights on, keeping administrative staff paid. Somewhere along the way, I believe LFUCG classified another 21% of those costs as being administrative.
The other 21% - most of that is going toward programmatic costs that aren't directly purchasing the debt, like helping pay the salaries of the people who are doing those jobs - not necessarily the president or the vice president of the company, but the people who are in charge of legal counsel, buying the debt, cybersecurity. And some of it also pays for software and security systems.
You can find the whole breakdown online, but I think the confusion came from whether the indirect cost was 15% or whether it was nearly one third of the total $1 million.
It's important to keep in mind the return on the investment is significant. The city is putting in $1 million and getting $90 million. Sure, none of that money is returned directly to the city, but once people have those debts wiped, it can help re-stimulate the economy.
Clay
Organizers in Paducah are seeking to implement their own partnership with Undue Medical Debt. How is theirs different?
Anabel
Paducah is actually doing a more traditional partnership with Undue Medical Debt. Paducah Action - which is an organization, but not a nonprofit, yet - are partnering with Undue Medical Debt in the form of a crowdfunding campaign.
They're not working directly with the city. Instead, they're rallying the community. They have some community donors and company sponsorships with the aim of wiping medical debt for residents of Paducah and McCracken County. Their total goal is about $36,000.
The campaign needs to hit a minimum of $10,000 between its start in early January to May first in order for that chunk of money to go toward wiping medical debt for Paducah. If they don't hit that $10,000 benchmark, the money still goes to abolishing medical debt, but it will be used for Undue Medical Debt's national campaign.
When I had these conversations with the leaders of Paducah Action, their main concern about a municipal partnership was the amount of time it can take. In Lexington, it did take some time. Dan Wu, who championed this initiative, heard about it first in 2022 or 2023, and it took a while to get past all the barriers to make this contract happen. The money was allocated from the fund balance in late 2024, and they signed the contract mid-2025. We're starting to see the results now, but that's after a lot of time, a lot of waiting, and a lot of work.
With Paducah Action's community effort, they're able to get a running start.
Anabel Peterman writes for CivicLex and Next City.
The second round of debt relief through Lexington's partnership with Undue Medical Debt was announced last week. It will erase over $5 million of medical debt for 3200 Lexington residents.