Eliminating Medical Bankruptcy: ACA a Good Start, But Not the Solution


Obamacare has given almost everyone in the U.S. access to healthcare, and 89% of Americans now carry some sort of health insurance, according to a March 2016 Health and Human Services report.

But is simply having coverage enough? Unfortunately, even with insurance, huge medical bills still take a terrible toll on the finances of many Americans. 

When the controversial Patient Protection and Affordable Care Act (ACA) was signed into law by President Barack Obama in March 2010, it promised many benefits for American healthcare consumers, such as:

  • Better access to affordable health care

  • The end of exclusions barring coverage for certain individuals with preexisting health conditions

  • The ability for young adults to stay on their parents’ policies through age 26

  • Medicaid expansion to cover more low-income people

But a lesser-known financial benefit is a marked reduction in personal bankruptcies filed annually in the U.S.

Although bankruptcy courts don’t ask people to explain exactly why they are filing, experts agree that outstanding medical bills were a leading cause of bankruptcy filings before ACA. According to the National Health Interview Survey conducted annually since 2011 by the Centers for Disease Control and Prevention (CDC), the number of consumers under age 65 who said they had problems paying off their medical bills in the previous year has fallen each year since 2011, dropping from 21.3% of households surveyed in 2011 to 16.2% in 2016.

The decrease is being recorded across the board for families regardless of race, age, insurance status or gender, according to Robin Cohen, the survey’s lead author, although females were more likely than males to have been in a family that had problems paying medical bills. Not surprisingly, persons who were poor or “near poor” were twice as likely as others to be in families having problems paying medical bills.

According to a Consumer Reports study published in May, the ACA’s provisions for compulsory coverage of pre-existing conditions and ending annual and lifetime benefit caps have helped consumers avoid bankruptcy, as filings between 2010 and 2016 were cut in half. Delaware consumer bankruptcy attorney Mark Billion has seen this decline firsthand.

“We too see the trend of declining medical bankruptcies, due in large part to the ACA’s expansion of insurance coverage,” he said. “While we do still see a substantial portion of Chapter 7 filings associated with the unpaid co-pays, these are typically mixed cases – i.e., medical debt coupled with more typical consumer debt like credit cards.”

However, the ACA has far from eliminated insurmountable medical debt and medical bankruptcy. A recent poll conducted by National Public Radio, the Robert Wood Johnson Foundation and Harvard’s T.H. Chan School of Public Health found that even those with health insurance are still struggling to pay medical bills. Twenty-six percent of those surveyed said healthcare expenses have severely impacted their families’ finances, and 7% reported that they ended up in bankruptcy.

One of those people is Barbara Radley of Oshkosh, Wis., who suffers from back problems, diabetes, liver failure and scleroderma, conditions that rendered her disabled several years ago. In 2014, the premium on her husband Neil’s company insurance policy increased to over $700 per month, including higher copays and a $5,000 deductible. Shortly after the increase, Neil was forced to undergo emergency surgery and couldn’t work for several months, and the couple had no choice but to file for chapter 7 bankruptcy in October 2014.

Unfortunately, the Radleys’ problems are far from over. Although Barbara and her husband were able to discharge old medical debt in bankruptcy, her medical costs are ongoing and her husband required another surgery after the bankruptcy filing, leaving them with more than $10,000 in new, unpaid medical debt despite having medical insurance, a scenario that is very familiar to Billion. “Medical insurance increases what a typical consumer can absorb,” he explained. “Without it, a single broken arm will likely send a typical service worker into bankruptcy.  With it, the bankruptcies are more associated with chronic diseases where the ongoing cost of treatment leads to bills piling up.”

A 2015 study by the Kaiser Family Foundation found that Radley’s employer’s strategy of shifting more healthcare costs to employees is far from uncommon. Although employers generally require that workers make some contribution toward health insurance premiums, workers’ share of health insurance premiums for their families increased 83% between 2005 and 2015, and the amount they had to pay for deductibles rose 255% from 2006 to 2015, both far higher than corresponding wage growth.

Although the efforts of President Trump and Republican lawmakers to repeal and replace (or simply repeal) the ACA have thus far been unsuccessful, what would happen if their plans were to become reality? The options that were rejected would likely cause 32 million people to lose coverage by 2026, according to the latest Congressional Budget Office estimate, placing lower-income Americans into dire financial straits and likely causing a spike in medical bankruptcies, according to Billion.

“I believe repealing Obamacare will lead to more bankruptcies.  Typically consumers wind up with good insurance – but not great insurance – and it is expensive.  Given the fact that the insurance leaves something to be desired, the cost of the same and the belief that most people have about risk, namely that ‘it’ will happen to someone else, I expect fewer people to stay insured.  Or at a minimum, to carry coverage as comprehensive as they do now.  And, without that coverage, more catastrophes will lead to more medical bankruptcies,” he said.

So what can be done to help Americans avoid the crushing medical bills that give them no choice other than to file medical bankruptcy? “Better coverage for chronic conditions would help immensely,” Billion said. “Consumers either need lower (or income-based) deductibles or lower (or again income-based) copays.  The problem is that the cost of treatment does not vary by income level, but the ability to pay does. The ACA was a great start, but it did not end the problem of medical bankruptcy.”



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