Arizona Governor Katie Hobbs announced this week that more than $1 billion in medical debt has now been erased for residents across the state, the biggest milestone yet in a program that buys up old hospital bills and cancels them for free. There's no application process — if a resident's unpaid medical debt gets purchased under the program, it simply disappears. Letters informing Arizonans that their bills have been wiped out started landing in mailboxes this week, Hobbs said.
No Paperwork, Just a Letter in the Mail
The relief flows through a partnership Hobbs launched in 2024, when the state set aside $30 million in COVID-19 relief funds to work with Undue Medical Debt, the nonprofit formerly known as RIP Medical Debt, according to AZ Family. The nonprofit uses that money to buy overdue hospital bills from providers for pennies on the dollar, then forgives the debt outright instead of trying to collect it.
To qualify, Arizonans must earn at or below 400% of the federal poverty level — an income cap of roughly $60,000 for a single adult or about $124,000 to $125,000 for a family of four, according to Business Insider. Households must also owe at least 5% of their annual income in outstanding medical bills to be eligible, per the same report.
Hobbs: Anyone Could Be "One Diagnosis Away"
Among those already helped is a woman named Brittany, who had $18,000 of medical debt erased through the program. She told AZ Family the relief was "life-changing."
"Many people may be one major catastrophe, medical emergency or diagnosis away from a similar situation," Hobbs told AZ Family. Her comments came as the state disclosed the billion-dollar total, capping a program that started with far more modest ambitions two years ago.
A Program That Snowballed Over Two Years
The billion-dollar figure caps a rapid climb for the program. Arizona had already erased $429 million in medical debt for 352,000 residents by July 2025, and that total grew to $642 million for 485,000 people by December 2025, according to KTAR News. Before Hobbs's initiative began, the state's total medical debt burden was estimated at $2.4 billion, and officials said at the time that the initial funding could eventually erase up to $2 billion of it.
When the partnership was announced in 2024, some raised questions about whether using public funds to cancel private debt ran afoul of the Arizona Constitution's Gift Clause, which restricts government financial aid to private entities. Hobbs's office said state attorneys were confident the program complied with federal stimulus spending rules, according to KNAU.
Tax-Free Relief, but Credit Reports Are Trickier
Residents also don't need to worry about a surprise tax bill. Medical debt cancelled through a 501(c)(3) charity like Undue Medical Debt counts as a non-taxable gift under federal law, meaning beneficiaries face no new income tax liability on the forgiven balances, per 12News.
The relief doesn't necessarily scrub debt from a credit report, though. A federal district court judge in Texas vacated a Consumer Financial Protection Bureau rule in July 2025 that would have banned medical debt from appearing on credit reports nationwide, ruling the agency exceeded its authority under the Fair Credit Reporting Act, according to Consumer Reports. That rule, finalized in January 2025, had aimed to strip $49 billion in medical bills from the credit reports of 15 million Americans.
Older State Protections Already Limit Collection
Arizona voters had already built in guardrails against aggressive medical debt collection years before Hobbs's program existed. Proposition 209, approved in November 2022 with 72% support, caps annual interest rates on medical debt at 3% and limits wage garnishment for healthcare bills to 10% of disposable earnings, according to Arizona Courts.
Part of a Much Bigger National Debt Crisis
Arizona's total mirrors a far larger nationwide problem. A 2024 KFF study estimated that roughly 20 million people across the U.S. collectively owe $220 billion in medical debt, with 3 million of them carrying balances over $10,000, according to Business Insider.
How Arizona Compares To Other States
Arizona joins a small group of states leaning on unspent American Rescue Plan Act money to erase debt through Undue Medical Debt. Illinois used the same model to shred $1.1 billion in bills for roughly 500,000 residents earlier this year, a template that traces back to a debt buyback program Cook County, Illinois, pioneered in 2022.
Doctors See a Public Health Upside
Physician groups say the benefit extends beyond a cleaner ledger. Erasing past-due bills reduces patients' fear of debt collectors and can encourage them to return to preventive and chronic care they had been avoiding, according to the Arizona Medical Association. Research cited by the group shows medical debt is a common reason patients delay care altogether.
A Federal Deadline Is Forcing the Pace
The clock is ticking on how much more relief the program can deliver. Federal rules require states to fully spend allocated ARPA funds by the end of 2026, giving Undue Medical Debt a firm window to keep buying up Arizona's debt portfolios, according to Arizona Capitol Times. Officials have adjusted their purchases to make sure the money is fully spent before that cutoff, and any relief beyond this year will likely hinge on broader healthcare affordability reforms rather than another round of pandemic stimulus.
