Consumer Reports: Obamacare reduced bankruptcy rate

A new article at consumerreports.org suggests that the Patient Protection and Affordable Care Act* (PPACA) played a substantial role in the decline of annual personal bankruptcies that we have seen since the high of 1.5 million in 2010.

As I showed several years ago, international bankruptcy data support the oft-heard claim that medical bills make up one of the biggest, if not the biggest, causes of personal bankruptcy. That is, if the United States has a bunch of medical bankruptcies and other countries don't, all other things equal you would expect the U.S. to have a higher overall bankruptcy rate than other countries. And the only article I was able to find on this showed that it was true: In 2006, the U.S. had a rate (6000 per million population) that was twice Canada's (3000 per million), which in turn far outstripped #3 Germany (1200 per million). The U.S. and Canadian rates have long been the highest because they had the most debtor-friendly bankruptcy systems, so debtors took advantage of it when they could.

Canada and the U.S. had similar rates in 1982, but thereafter the U.S. rate increased substantially more rapidly than Canada's did. As this period was also marked by U.S. health care costs outstripping those of other OECD countries, this is definitely evidence that medical bills were contributing to the higher U.S. bankruptcy rate.

Now, as suggested by Consumer Reports, the increase in insurance coverage rates and the many consumer protections due to the Affordable Care Act are contributing to a falling bankruptcy rate. Certainly, part of the fall is due to the passing of the worst part of the Great Recession, but the numbers are still striking.




As the article points out and the chart above emphasizes, protections that surely reduced bankruptcy rates were contained in even the initial phase of the ACA. In 2011, the Obama administration rolled out the ban on yearly and lifetime limits, guaranteed coverage for pre-existing conditions, and implemented the rules allowing adult children to remain on their parents' policies until they were 26. By the time all ACA provisions were in effect in 2014, there was already a decline of over 600,000 bankruptcies per year. In the next two years, bankruptcies declined by a further 160,000 per year.

With the possibility that the American Health Care Act (AHCA) could reverse many of those protections, the conclusion is inescapable that medical bankruptcies will once again increase. Just how much, of course, depends on the particulars after (and if) the bill goes through the Senate, but this new study shows us just how much we have gained, and how much we have at risk.

* I use the full name of the law because both the patient protection and affordability aspects of the legislation contributed to this outcome.

Consumer Reports has not responded to my request for permission to use the chart. I will remove it if so requested.

Cross-posted at Angry Bear.

Medical Costs Help Drive United States to Highest Bankruptcy Rate in OECD

As I have discussed before, medical bills are one of the leading causes of bankruptcy in the United States. In fact a 2009 study by David Himmelstein et al. in the American Journal of Medicine (abstract here, news story here) shows that there was a sharp increase in the proportion of bankruptcies with significant medical causes (defined as debts over $5,000, loss of income due to health problems, or mortgaging of the debtor's home to help meet medical expenses) between 2001 and 2007. According to their study, 46.2% of bankruptcies in 2001 were medically-related, while by 2007 the level had grown to 62.1%, even though bankruptcy laws had become more restrictive in the interim.

These figures have sometimes been disputed by other scholars, for example this article by Dranove and Millenson in a 2006 symposium in the journal Health Affairs, which argued that the definition of medically related used by Himmelstein et al. was far too broad.

If  medical bills are contributing to a higher proportion of bankruptcies in the U.S., we should expect to see this reflected in a higher overall bankruptcy rate than for countries where universal health insurance makes medical bankruptcy impossible. It turns out that this hunch is correct.

In 2006, Rigmar Osterkamp of the Ifo Institute for Economic Research in Munich, Germany, analyzed select OECD countries that had bankruptcy data extending over many years and which clearly distinguished between personal and business bankruptcies. Between 1980 and 2005, the United States opened up a steadily widening margin over #2 Canada, which itself was significantly ahead of the other OECD members studied (Australia, Germany, the Netherlands, Sweden, and the United Kingdom). According to Osterkamp, the U.S. and Canada had the two most debtor-friendly bankruptcy systems, though he noted that Germany's had become much more debtor-friendly in 1999 (leading to a sharp increase in bankruptcy filings), whereas U.S. law had become more restrictive in 2005. He saw this relative debtor-friendliness as the explanation for why Canada and the United States had higher rates of bankruptcy. However, he did not consider what differentiated the two countries.

As we can see from the chart, in 1982 the U.S. and Canada had virtually identical rates of around 1200 per million population, whereas by 2005 the United States was around 6000 per million while Canada was just a little over half that rate. (As Michelle White notes, the 2005 figure was inflated by consumers wanting to file under the more favorable law. According to the American Bankruptcy Institute, the figure plunged to 597,000 in 2006 but by 2010 had again topped 1.5 million filings.)

Without a detailed statistical analysis, I can't prove that the rise in medical bankruptcies accounts for the growing gap between U.S. and other OECD bankruptcy rates. But besides the suggestive fact that the proportion of medical bankruptcies grew in at least the latter part of the 1980-2005 period, we also know that U.S. per capita health care spending opened up a very similarly shaped gap relative to the rest of the OECD over the entire time span. And the finding that the U.S. personal bankruptcy rate is so much higher than that of other rich countries suggests that Himmelstein et al. are more likely closer to the truth in their estimation of the level of medical reasons for bankruptcy than are their critics.

Heritage Tries to Mislead Us on How Swell Poverty Is

A little late getting to this (I've had unexpected travel), but Matt Yglesias makes an important point I wanted to expand upon. That is, just because you can afford a number of modern conveniences doesn't mean you're not poor. Similarly, people don't go bankrupt because they can't afford a TV, but because of medical bills (62% in 2007) or job loss.

Yglesias: The Heritage Foundation is out with the latest version of its annual poor people aren't poor because electronics are cheap report.....A serious person would follow this up with a discussion of relative prices. Over the past 50 years, televisions have gotten a lot cheaper and college has gotten a lot more expensive. Consequently, even a low income person can reliably obtain a level of television-based entertainment that would blow the mind of a millionaire from 1961. At the same time, if you’re looking to live in a safe neighborhood with good public schools in a metropolitan area with decent job opportunities you’re going to find that this is quite expensive. Health care has become incredibly expensive.

How much more expensive? For higher education costs, the College Board presents this table of how far above the general inflation rate college costs have grown. Remember, these are tacked on top of the general inflation rate. Thus, over the 30-year period public four-year universities have gotten 3 1/2 times as expensive in real (inflation-adjusted) terms, for example.

	Tuition and Fees				Tuition and Fees and Room and Board
	Private Nonprofit Four-Year	Public Four-Year	Public Two-Year		Private Nonprofit Four-Year	Public Four-Year
1980-81 to 1990-91	5.1%	4.2%	3.9%		4.3%	2.3%
1990-91 to 2000-01	2.6%	3.3%	3.2%		2.2%	2.3%
2000-01 to 2010-11	3.0%	5.6%	2.7%		2.8%	4.2%

Average annual rate of growth of published prices in inflation-adjusted dollars over a 10-year period. For example, from 2000-01 to 2010-11, average published tuition and fees at private four-year colleges rose by an average of 3.0% per year beyond increases in the Consumer Price Index.

View Notes and Sources

Let's now compare overall inflation with health care inflation (inflation tables are at: http://data.bls.gov/cgi-bin/surveymost?cu). The CPI-U (consumer price index – urban) for all items was 225.722 in June 2011, compared to 37.8 in January 1970 (1982-84=100), meaning that urban prices were 5.97 times as high as 41 years earlier. By contrast, the CPI-U for medical care rose to more than 12 times as high over the same period, from 32.7 to 399.552. No wonder health care costs have caused problems for so many people.

To sum up, the economic problems facing poor or middle-class people aren't related to spending on frivolities, which are largely low-cost. Instead, they come from what one's health insurance company will or won't pay for, whether you have a job or not, and whether you can afford the housing and education to give your children a better life. The Heritage folks, while giddily pointing out that the poor in America see doctors, also support deep cuts (“entitlement reform”) to the programs that make that possible in the first place. Have they no shame?