FRANKFORT, Ky. — Kentucky is putting $2.5 million toward a program that officials estimate will erase $250 million in medical debt for more than 130,000 Kentuckians.

Gov. Andy Beshear signed an executive order Tuesday directing the money to Undue Medical Debt, a nonprofit that buys medical debt for a fraction of the amount originally owed and then cancels it.

The organization says its model allows each dollar spent to eliminate an average of $100 in medical debt.

How does it work?

The $250 million figure does not mean the state is spending $250 million to pay off medical bills.

Instead, Undue Medical Debt uses the $2.5 million to purchase qualifying medical debt at a steep discount. Once the nonprofit acquires the debt, it cancels what the patient owes.

That means the amount of debt canceled can be much larger than the amount of money used to purchase it.

Kentucky has used a similar approach before. Lexington's local government partnered with Undue Medical Debt on a program that used $1 million in public funding to eliminate up to $90 million in medical debt for Lexington-Fayette County residents.

Who could qualify?

To qualify for the Kentucky program, a person must be a Kentucky resident who meets at least one of two requirements.

They must either:

• Owe at least 5% of their annual income in outstanding medical bills; or
• Have an income at or below 400% of the federal poverty level.

The state says the second threshold is about $100,000 for a family of three.

Do you have to apply?

No.

There is no application process, and residents cannot request that a specific medical debt be erased.

People whose debt is selected for relief will receive an official letter identifying the debt that was canceled and the creditor involved.

The first round of relief is expected to cover about 46,000 Kentuckians and up to $100 million in medical debt. Letters are expected to begin arriving next week.

What about Barren County?

The state has not released a county-by-county breakdown showing how many Kentuckians, or how many people in Barren County, are expected to receive debt relief.

Meeting the program's eligibility requirements also does not mean a person's specific medical bill will automatically be erased. The debt must be among the qualifying debt acquired by Undue Medical Debt.

The bottom line

Kentucky is spending $2.5 million on a program expected to erase $250 million in medical debt. The difference comes from Undue Medical Debt's ability to purchase qualifying debt for far less than the amount patients originally owed and then cancel the debt.

There is no application process. Kentuckians whose debt is selected for relief will be notified by mail.