(The Center Square) — New Jersey Gov. Phil Murphy plans to wipe out $100 million in medical debt held by nearly 50,000 residents by leveraging hundreds of thousands of dollars in federal pandemic relief money.

Under the plan, announced on Tuesday, the state is partnering with Undue Medical Debt, a national nonprofit, to give residents some reprieve from their unpaid bills, which will use $550,000 in American Rescue Act funds available to the state through the COVID-19 relief law.

Nearly 18,000 New Jersey residents, who owed a combined $61.6 million to Prime Healthcare hospitals, will be among the first to have their medical debt eliminated. Another 32,000 residents who owe more than $38.4 million to other providers, primarily through collection agencies, will also get relief, the Murphy administration said.

Murphy, a Democrat, said the move will have a “real, tangible impact” on New Jerseyans’ lives. In the state, about one in 10 people have medical debt that has been referred to collection agencies due to lack of payment.

“When someone is sick or injured, they should be able to focus on what matters most – getting better – rather than worrying about how they will pay for the life-saving care and services rendered to them,” he said in a statement. “New Jerseyans should not have to scrimp and save to ensure their basic health care needs are met, or to pay down lofty medical debts resulting from tragic accidents or devastating diagnoses.”

In July, Murphy signed the Louisa Carman Medical Debt Relief Act, which authorized the medical debt plan, strengthens the state’s consumer protection laws to crack down on predatory medical debt collectors, and prohibits the reporting of medical debt to credit reporting agencies. The law was named after a member of Murphy’s office who helped craft the proposal before she was killed in a car accident.

Those who qualify for medical debt relief are either four times or below the federal poverty level or have medical debts that equal 5% or more of their annual income, under the program’s requirements.

New Jersey is one of several states and major U.S. cities seeking to ease the pocketbook impacts of rising medical debt, which officials say is creating a financial strain on many low and middle-income households.

In February, Connecticut became the first state to wipe out medical bills by contracting with a private firm to erase $1 billion in debt held by more than 250,000 residents, leveraging $6.5 million in American Rescue Plan Act funds.

People whose household income is up to 400% of the federal poverty line, or $124,800 for a family of four, or whose medical debt equates to 5% or more of their annual income are eligible under Connecticut’s program.

New York City Mayor Eric Adams announced last month that the city will eliminate more than $2 billion in medical debt for up to 500,000 residents over the next three years.

Medical debt is the leading source of collections debt for Americans, more than credit cards, personal loans, utilities and phone bills combined, according to a recent Consumer Financial Protection Bureau report. Nationally, an estimated 19% of American households have medical debt, with a median of $2,000 owed, the agency said.

The percentage of Americans whose families are having trouble paying their medical bills was 10.8% in 2021, a recent report from the Centers for Disease Control and Prevention found.

In 2022, the nation’s three largest credit reporting agencies announced they would eliminate nearly 70% of medical debt from credit reports amid pressure to ease the impact on consumers. The move eliminated billions of dollars of debt from consumer records.