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> Debt is a commodity that can be bought and sold. A lot of debt never gets paid off so institutions sell it in bundles, at a discount, to third-party collector

> Debt is a commodity that can be bought and sold. A lot of debt never gets paid off so institutions sell it in bundles, at a discount, to third-party collectors. > Because they buy debt bundles at a steep discount, RIP says each donation relieves about 100 times its value in medical debt. I'm no economist, but am I correct in assuming that if this charity became large or well-funded enough to address any significant percentage of the problem, that the discount would disappear? For the people they help, it's great, and at their current scale it probably doesn't move the needle regarding the huge problem with medical insurance, billing, pricing and debt we have in America today. But if they get more donations and keep doing this on a larger scale will it move the needle? And if so, in which direction?

addicted 3y ago
No private entity is gonna solve the trillion dollar mess that is the US healthcare system. However, they can completely solve the problem that is people who are almost bankrupt because of medical debt and have that bankruptcy hanging over their heads. Their ceiling is essentially everyone that is extremely likely to declare bankruptcy because they’re unable to pay the debts. The actual owners of the debt are not gonna get any money back. Even a 3rd party is not likely to buy the debt because the only people who are gonna pay for this debt are charities like this and they aren’t required to do so, so they get to completely set the market rate. Essentially, you have a lender that’s lent out $100 in medical debt to people who are basically bankrupt and is likely to get no money back. A 3rd party might gamble that they will probably get $1 back so they may be willing to pay $0.75. However, this charity can offer the lender $1.25 and actually get $0 back because their purpose isn’t to make money (they can also “lose” money). Their purpose is to either prevent someone from going into bankruptcy or removes a huge burden on people who may already have declared bankruptcy. What actually makes this system work is a properly functioning bankruptcy court. If the bankruptcy court didn’t effectively protect borrowers, then there would be no incentive to sell the debt for so cheap since you could try and extract money out of the borrowers. Alternatively, if the bankruptcy court was easily abused to discharge debt by people who can afford it, then lenders would exit the medical debt industry altogether (or rather, all treatments would end up requiring upfront payment).
theranos1211 3y ago
I wouldn’t expect it to. The debt is currently sold for e.g. 1% of face value because debt collectors can collect maybe 5% on it, which may translate to 2% of profit after costs. In this case, a charity buying lots of debt would never have to buy debt for much more than 3%, as no debtor could pay it without losing money. Conceptually you can think of the 2% average profit as a market rate - if it ever goes too low some debt collectors will go out of business (due to inherent risk of business), and too high more competitors will spring up. Indeed in an efficient market this % on average is constant across different types of businesses too. Here you can think of recoup % - profit % = price of the debt %, as an output of profitability rather than input into profitability. So if anything, more charity purchases would put debt collectors out of business as the profit equilibrium shrinks. but this may have the effect of debt collectors innovating / cutting costs which could be detrimental. Apologies for structure all done on mobile before bed
vidarh 3y ago
In as much as the portion of debt that is sold at this discount is basically the portion of debt they don't expect to recover much of, yes. The more they are able to buy, the more expensive the next batch will be. But by attacking the most discounted debt they're also relieving those least able to pay from having it hanging over them first.
deleted 3y ago
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addicted 3y ago

No private entity is gonna solve the trillion dollar mess that is the US healthcare system. However, they can completely solve the problem that is people who are almost bankrupt because of medical debt and have that bankruptcy hanging over their heads. Their ceiling is essentially everyone that is extremely likely to declare bankruptcy because they’re unable to pay the debts. The actual owners of the debt are not gonna get any money back. Even a 3rd party is not likely to buy the debt because the only people who are gonna pay for this debt are charities like this and they aren’t required to do so, so they get to completely set the market rate. Essentially, you have a lender that’s lent out $100 in medical debt to people who are basically bankrupt and is likely to get no money back. A 3rd party might gamble that they will probably get $1 back so they may be willing to pay $0.75. However, this charity can offer the lender $1.25 and actually get $0 back because their purpose isn’t to make money (they can also “lose” money). Their purpose is to either prevent someone from going into bankruptcy or removes a huge burden on people who may already have declared bankruptcy. What actually makes this system work is a properly functioning bankruptcy court. If the bankruptcy court didn’t effectively protect borrowers, then there would be no incentive to sell the debt for so cheap since you could try and extract money out of the borrowers. Alternatively, if the bankruptcy court was easily abused to discharge debt by people who can afford it, then lenders would exit the medical debt industry altogether (or rather, all treatments would end up requiring upfront payment).

theranos1211 3y ago

I wouldn’t expect it to. The debt is currently sold for e.g. 1% of face value because debt collectors can collect maybe 5% on it, which may translate to 2% of profit after costs. In this case, a charity buying lots of debt would never have to buy debt for much more than 3%, as no debtor could pay it without losing money. Conceptually you can think of the 2% average profit as a market rate - if it ever goes too low some debt collectors will go out of business (due to inherent risk of business), and too high more competitors will spring up. Indeed in an efficient market this % on average is constant across different types of businesses too. Here you can think of recoup % - profit % = price of the debt %, as an output of profitability rather than input into profitability. So if anything, more charity purchases would put debt collectors out of business as the profit equilibrium shrinks. but this may have the effect of debt collectors innovating / cutting costs which could be detrimental. Apologies for structure all done on mobile before bed

vidarh 3y ago

In as much as the portion of debt that is sold at this discount is basically the portion of debt they don't expect to recover much of, yes. The more they are able to buy, the more expensive the next batch will be. But by attacking the most discounted debt they're also relieving those least able to pay from having it hanging over them first.

deleted 3y ago

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