Before the Patient Protection Affordable Care Act (ACA), which Congress passed in 2010, medical bankruptcy was alarmingly common. Because many Americans could not afford health insurance, if they suffered an injury or were diagnosed with a serious illness, then they could face very large, unpayable bills. It doesn’t help that the U.S. has one of the most bloated medical systems in the developed world. Now that the ACA is on Congress’ agenda, an article on Consumer Reports‘ Web site asks not whether the ACA reduced medical bankruptcies, but by how much.
Before discussing the article’s findings, it’s necessary to review how the ACA changed health care. Primarily it forbade insurers from denying people health care due to preexisting conditions. This solved health care’s inherent “adverse selection” problem, which refers to the incentive insurers have to provide coverage only to healthy people to keep their costs down. Insuring people with preexisting conditions requires a legal mechanism that forces people to buy health insurance (“the individual mandate” or “the employer mandate”) and subsidies to people who cannot afford to do so. Along these lines, the law also offered states the option of expanding health care to the poor, Medicaid. The ACA also ended lifetime insurance caps and allowed parents to keep their children on their insurance plans until they were 26 years old.
It’s understandable that the ACA would cut medical bankruptcies, but since the ACA was passed in 2010, total bankruptcy filings have fallen by half. Thus, the extent of the law’s role is debatable. 2010 was a peak year for bankruptcies because of secured mortgage debt, not unsecured medical debt. Most people who were eligible to file and needed to did so. After that, with less household debt and employment ticking upwards, it’s predictable debtors would file. It’s also likely that the Bankruptcy Abuse Prevention and Consumer Protection Act’s barriers to chapter 7 bankruptcy cases have also caused an impact over the years. (Click here to read about the effects of means-testing bankruptcy.)
Consumer Reports cited two studies on the ACA’s effects on bankruptcy. In the first, a law professor surveyed one hundred national bankruptcy filings and compared them to one hundred filings in Massachusetts, which implemented a similar version of the ACA in 2006. He found that in 2014, medical debt was the single largest factor in bankruptcies among many others: 18 percent of cases had them, but 25 percent said it was a significant factor in their cases. In the Massachusetts cases, debtors tended to owe more unsecured debt, but about half as much medical debt compared to the nationwide sample. In the second study, conducted by the Center for Disease Control (CDC), the percent of households struggling with medical bills fill by 5 percent, accounting for 13 million households.
The Consumer Reports article is here.
Disturbingly, more than 40 million American households still say they had problems paying medical bills in 2016. This can be due to some problems the ACA has not solved, such as high deductibles, co-pays, and the fact that some people still go without insurance. Just because the ACA has probably reduced one of the most common reasons for a chapter 7 bankruptcy does not mean that medical debt isn’t still a problem for Americans. If you are struggling with medical debts, then talking to an experienced New York bankruptcy lawyer can help you evaluate your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
