Obamacare and Medical Bankruptcy

Is Obamacare reducing the number of people who file bankruptcy for medical reasons?

Probably not, because although the federal government is spending $79 billion this year and a projected $1.2 trillion through 2025 to provide health coverage for the previously uninsured, other features of the law may have the unintended effect of making people more likely to file for bankruptcy.

Although the left leaning Huffington Post recently proclaimed “Fewer People Are Having Trouble Paying Medical Bills, Thanks To Obamacare,” the HuffPo article conveniently forgot to mention that its 2013 numbers were from before the Obamacare Health Care Exchanges opened in January 2014.

Thus far, Obamacare appears to have had no measurable impact on the rate of bankruptcy filings. The lack of positive effect on bankruptcies is consistent with a prior academic research paper analyzing Massachusetts’ Romneycare, after which Obamacare was modeled. In Massachussetts, although more people got insurance under Romneycare, the number of medical bankruptcies went up after it was implemented.

Why? One unfortunate feature of Obamacare is that there was very little in the way of cost containment in the 2,700 page law and thousands of pages of regulations implementing it. For example, the silver plans offered through the Obamacare exchanges, while typically covering about 70 % of total costs, still leave 30% for the individual to pay. With hospitals sticking their patients with so-called “charge master” rates where a box of gauze pads can cost $77, paying 30% is still $23 per box (available at Walgreens for $3.99). Likewise, Obamacare continues to allow the practice by pharmaceutical companies of price discrimination against Americans, whereby Americans (and only Americans) pay much more for the same prescription drugs than anyone else in the world.

Second, under Obamacare employers have an incentive to cut employee hours below 30 hours per week so that the employer does not have to pay an additional Obamacare tax on its full time employees. The result is, “Congratulations, you now have both health insurance and a smaller paycheck.”

Amid this gloomy picture, there is some good news. First, in 2014, as more people found work and the U.S. unemployment rate fell to 5.6% by the end of the year, the total number of all new bankruptcies filed in 2014 in the United Sates fell to less than 1 million for the first time since 2007. In Wyoming, the number of new bankruptcy filings fell to less than 1,000 for the first time since 2008. That’s less than half of the more than 2,000 annual Wyoming bankruptcies during each of the years 2001-2004 before the Bankruptcy Abuse and Consumer Protection Act was enacted in 2005. It’s also more than a third lower than the post-2005 high of 1,562 bankruptcies in Wyoming in 2010.

The second piece of good news is that the percentage of Americans who have no health care insurance fell to 11.9 percent as of April 2015, down from 17.9 percent in the fall of 2013 and lower than the prior lows of 14.2% recorded in 1999 and 2005.

Both of these trends are healthy, but so far they appear to be unrelated. As the charts below indicate, in the post-2005 era, the rate of bankruptcies appears to track the unemployment rate but not the rate of health insurance coverage.

So although it’s possible that Obamacare will result in fewer bankruptcies, it could cause more, too. What really drives the number of bankruptcy filings is whether your paycheck is going up or down, not whether you got a silver plan on an Obamacare exchange.

April 2015 Uninsured Rate Gallup

April 2015 Uninsured Rate Gallup


US Bankruptcy Rates 2007-2014

US Bankruptcy Rates 2007-2014

Number of Bankruptcy Filings in US (above) and US Unemployment Rate (below)

US Unemployment Rates 2007-2014

US Unemployment Rates 2007-2014


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