The ACA Helped Cut Bankruptcy Filings in Half

May 2017 - For those of you who don't read Consumer Reports on a regular basis, you may not be aware that the magazine frequently discusses financial products and services as well as manufactured goods. One of their analysts recently took a look at personal bankruptcies over the last 10 years and found a very interesting trend: since passage and implementation of the Affordable Care Act (ACA), filings for personal bankruptcy have fallen almost 50%.

Courts do not require bankruptcy filers to provide a reason they are filing, but most bankruptcy and legal experts believe that medical bills are one of the leading causes. Consequently, since many Americans who would otherwise have had to pay 100% of their incurred medical expenses due to the lack of health insurance (whether because of a pre-existing condition or for having exceeded the lifetime limit insurance companies used to impose) now are not facing those daunting medical bills, it makes sense that the number of bankruptcy filings would have fallen.

Conservatives like to focus on two other factors that could have contributed to the reduction in bankruptcy filings. First was the 2005 bankruptcy reform, which makes it more difficult for individuals to file for bankruptcy. Second is the improving economy since 2010, although conservatives hate to admit that the economy did improve significantly throughout the Obama presidency.

So, from a public policy perspective, should medical bills be regarded as a primary cause for bankruptcy? Although foes of the ACA do try to argue 'no', logically and anecdotally it would seem the answer is 'yes'. More importantly, in support of the 'yes' argument are two studies cited in the Consumer Reports article.

The first is a 2014 study by Northeastern University professor Daniel Austin which indicated that, nationwide, up to 25% of personal bankruptcies were the result of medical bills. The Austin study also analyzed just the Commonwealth of Massachusetts, where the "Romneycare" health insurance reforms (the precursor for the nationwide Affordable Care Act) have been in place since 2006. Professor Austin found that only 9 percent of personal bankruptcy filings in Massachusetts were due to medical expenses and Massachusetts Citizens reported less than half the medical debt of Citizens elsewhere.

A second study cited by Consumer Reports is an annual survey performed by the Centers for Disease Control and Prevention. In that study, consumers were asked: Did you have problems paying medical bills in the last 12 months? In 2011, 21.3% of respondents answered yes; by 2016 that number had fallen to 16.2%. The graph below reflects the absolute numbers (i.e., not the percentages) of this study:

In our mind, then, the Consumer Reports article makes its case: medical bills are a leading cause for bankruptcies and the recent healthcare reforms, both at a state level in Massachusetts and at the federal level, can be credited as playing a large part in the decrease in personal bankruptcy filings over the past six years.