• 23
  • May
    2011

Studies demonstrate that medical debt is a significant contributor to bankruptcy, causing an estimated one-quarter to more than one-half of the nation's bankruptcies. Recently, two studies analyzed how Massachusetts' mandatory insurance law impacted medical debt and bankruptcies in the state, seeking to determine whether mandatory health insurance lowered the rate of personal bankruptcies (Chapter 7 bankruptcies and Chapter 13 bankruptcies) caused by medical debt.

Massachusetts' Health Insurance Law

In 2006, Massachusetts became the first state to mandate individual health insurance for its residents, four years before the Patient Protection and Affordable Care Act was signed into law by President Obama in 2010.

Changes to Massachusetts' insurance law included:

  • Fines for individuals without health insurance
  • Subsidized health insurance for low-income individuals
  • Expanded Medicaid coverage

Health Insurance and Bankruptcy Study #1

The first study of the impact of mandatory health insurance on bankruptcies was performed by a doctorate candidate in economics at the University of Illinois, Sarah Miller. The unpublished research found that the number of personal bankruptcies declined as more Massachusetts residents obtained health insurance.

Between 2006 and 2009, Massachusetts counties with the highest rates of uninsured residents experienced a 20 percent drop in bankruptcies when compared to counties outside the state with similar rates of uninsured residents. There were no significant changes in unemployment or the number of business bankruptcies during the same period, suggesting that the reduction in personal bankruptcies was not caused by improvements in the economy.

In addition, when the number of households eligible for Medicaid increased by 10 percentage points, the number of personal bankruptcies decreased by 8 percent.

Study #2

However, the second study found no significant change in the number of bankruptcies caused by medical debt after Massachusetts' mandatory health insurance law was enacted. In their report in the American Journal of Medicine, researchers David Himmelstein, Deborah Thorne and Steffie Woolhandler wrote that health insurance reform "did little to upgrade existing coverage or reduce costs, leaving many of the insured with inadequate financial protection."

After reviewing court records and bankruptcy surveys, Himmelstein, Thorne and Woolhandler found that the number of personal bankruptcies caused by illness or medical debt actually increased in Massachusetts between 2007 and 2009. In 2007, 7,504 bankruptcies were caused by medical debt, while in 2009, 10,093 bankruptcies were caused by medical debt.

For their study, Himmelstein, Thorne and Woolhandler classified a bankruptcy as caused by medical debt if the individual who filed for bankruptcy:

  • Reported that illness or medical bills caused the bankruptcy
  • Reported that he or she or a spouse lost at least two weeks of income to personal illness or a family member's illness
  • Had medical debt of at least $5,000 or greater than 10 percent of his or her income
  • Used mortgages to pay for medical care

These studies are inconclusive as to whether Massachusetts' mandatory health insurance law has reduced the cost of medical care or decreased the number of personal bankruptcies caused by medical debt in the state.

For people struggling with overwhelming medical debt, though, filing for bankruptcy may be the key to getting back on their feet.

Source: Massachusetts, Reform and Bankruptcy