A bill prohibiting the reporting of medical debt and which would wipe out $100 million of unpaid healthcare bills has passed both chambers of the Vermont legislature and is heading to the desk of Gov. Phil Scott for his signature or veto.
Driving the news: Senate Bill 27, aimed at eliminating medical debt for tens of thousands of Vermonters and preventing such debts from impacting credit reports, passed unanimously in both the Vermont House and Senate. If signed, it will take effect on July 1.
What the bill does:
- Debt relief: Allocates $1 million from the General Fund for fiscal year 2026 to the State Treasurer’s Office to contract with a nonprofit that will purchase and forgive up to $100 million in medical debt.
- Eligibility: Vermont residents are eligible if their household income is at or below 400% of the Federal Poverty Level or if their medical debt is at least 5% of their income. The debt must be in “terminal bad debt status” following standard collection efforts.
- No consumer burden: Debt forgiveness comes with no cost or tax consequences to consumers. Affected individuals will receive notification of the amount abolished, the provider involved, and available financial assistance options at hospitals.
- Credit protections: Prohibits both health care providers and credit reporting agencies from reporting medical debt. These restrictions apply to any large health care facility or medical debt collector.
Scope of “medical debt”: The definition covers debts related to health care services, including dental, psychiatric, preventative, and diagnostic care, as well as durable medical equipment and prescription drugs. It excludes veterinary expenses, general-purpose credit card debt, and secured loans.
How it works: The nonprofit will negotiate debt purchases with providers at a reduced rate. Once acquired, the debt will be erased, and any related negative credit reporting must be removed. Enrollment is automatic — no forms or applications are required.
Additional provisions:
- Adjustments to state statutes will ensure compliance by credit reporting agencies and healthcare providers.
- Credit access exemptions for 501(c)(3) organizations are expanded to facilitate eligibility verification for medical debt abolition.
- The bill explicitly separates “behavioral health” from mental health and substance use disorders in Vermont law.
