New York City plans to wipe out $2B in medical debt for 500k residents

And where does the nonprofit have the money from?

They have to buy the debt in order to forgive it.

is this a workaround for debt forgiveness counting as income for tax purposes?

It sounds like this isn't the cost of service, but the residual cost of buying defaulted debts. The hospitals and insurers have already written off the service as a loss and are trying to recoup anything they can by selling the debts for pennies on the dollar.

Unfortunately, that means that your payments are shouldering the burden of someone else's inability to pay the ludicrous cost of healthcare.

We can fix this by

1. Refusing care without payment at the time of service, which isn't possible, or even moral, in many cases.

2. Nationalizing healthcare and directly supporting healthcare with taxes so that payment is guaranteed to the service providers.

We cant. Its a very complex history.

One reason for this huge differential is because hospitals get paid a % of the losses in fed subsidies based on the nominal charge number stated on the invoices,[1] not the actual COGS.

For some history; with reimbursement formulas in our prior cost-plus system, a hospital's reimbursement was partly determined by its charges (the invoice). Hospitals discovered that by manipulating the charges, they could increase their total reimbursement.[2]

This was the bastard origin of the charge gaming culture at hospitals. It is hard to uproot now. This cukture found a new home with the federal loss subsidy.

This subsidy was an ask by hospitals to the government when the govt was trying to get uninsured to be seen at hospitals. So now they scratch each others backs.

Insurance play along with it. In theory you would think it's harmless (since the amount paid is the allowed, full stop) but it muddies the waters further. Why would insurance muddy the waters on itself on purpose? It makes them look amazing in front of employer clients. Think discount of 75% on a $200 charge vs a 50% discount on $100. 75% sounds a lot bettet to the employer. But the employer is paying the exact same. Its a marketing gimmick for insurers.

Hospital makes more federal dollars on that loss. Govt pays more in healthcare subsidies. Hardworking people without Insurance... get royally screwed.

[1] I cant remember now the 3-letter name of the program, but I'll link to it once i do.

[2] https://www.econlib.org/library/Enc1/HealthInsurance.html

The answer is in the second paragraph.