Friday, November 7, 2014

Bankruptcy and the Affordable Care Act ... any connection?

Image courtesy of Ambro at
I have found through my career the primary reasons people are forced to file bankruptcy are medical bills, an ugly divorce, and prolonged periods of unemployment. Most of the time, I find it is a combination of these things. That doesn't mean I haven't found other reasons pushing people into bankruptcy but I have found them to be common reasons.

An assistant professor of Health Policy,  Department of Health Policy and Management at Columbia University wrote an article about the potential impact of the expansion of Medicaid through the Affordable Care Act on the rate of Bankruptcy filings - "Deaths and bankruptcies: What awaits states that don't expand Medicaid?" I'm not sure how much practical information will come from this discussion but it has caught my interest.

The researchers "... hypothesized that Medicaid coverage might allow some families to avoid bankruptcy. After all, one of the chief benefits of health insurance is that---when you really need health care---you don't have to pay for it. Perhaps, we thought, families given Medicaid coverage are less likely to get stuck with a big hospital bill, and so are less likely to end up in bankruptcy."

In the article, the author stated, "To test that hypothesis, we dug up data on the Medicaid expansions of the 1990s and early 2000s. We found that, in the years after states expanded Medicaid, fewer families declared bankruptcy. Every ten-percentage-point increase in Medicaid eligibility---typical of 1990s-era Medicaid expansions---led to an eight-percent reduction in bankruptcy rates."

Again, I agree one cause of bankruptcy can be a serious medical issue and high medical bills. It is unclear if the researchers drilled down into the dockets to see the types of debts listed in the schedules. I don't know if the researchers uncovered evidence the expansion actually reduced the number of bankruptcies with medical debt being discharged. I can see some correlation but I suspect the dramatic reduction was due to multiple factors.

The article seems to ignore the fact that the 1990's ushered in one of the longest periods of expansion in the US since WWII. The unemployment rate declined from a high of 7.5% to under 5% by the end of the decade. The second half of the decade saw growth of the GDP averaging over 4%. And I found one report that stated over 22 million jobs were created in the 1990's. The bottom-line is the economy really started to move in that decade after a sluggish start. It make sense that bankruptcy rates dropped through the 1990's for many reasons.

But my experience is explaining the cause of bankruptcy isn't this simple.  Most of the time debtors are good people who believe they will be able to get themselves out of the hole they are in and sometimes they do. Most of the time, they throw good money after bad. While I think real, affordable medical care could help many with less means, I don't believe people should look to the expansion of Medicaid to bail them out of their financial hole. If you even think you might be in over your head, talk to a bankruptcy attorney. The only thing you have to lose is your debt.

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