Affordable Care Act Reduced Personal Bankruptcy by Half

Now that the House of Representatives has passed its version of the law aimed at repealing and replacing the Affordable Care Act (ACA), it is an important time for Chicagoland residents to look closely at the ways in which the ACA has had a positive impact not only on American healthcare, but also on consumer debt. As an article in Consumer Reports makes explicit, since the adoption of the ACA, “far fewer Americans have taken the extreme step of filing for personal bankruptcy.” Since the ACA took effect in 2010, American bankruptcy filings “dropped by about 50%, from 1,536,799 in 2010 to 770,846,” according to the article.
Given that medical bills are among the leading causes of consumer bankruptcy across the U.S., some experts suggest that the decline in filings could in fact be causally related to the passage of the ACA. What else do you need to know about this connection, and how could a new law result in a surge in personal bankruptcy filings?
Previously Uninsured and Underinsured Americans Filing for Bankruptcy
According to the article, it is medical bills that so often result in consumers filing for bankruptcy because “unlike other causes of debt, medical bills are often unexpected, involuntary, and large.” In other words, most Americans are not saving money in the event of an unexpected medical bill. We may know that we have to make regular payments on our mortgages, and to other creditors with whom we have borrowed, but most of us simply are not expecting to have to pay costly medical bills. As such, when hospital bills, or surgery and treatment costs, end up in the tens of thousands (or hundreds of thousands) of dollars, most people cannot see a path forward in which they can pay off that debt. For many of those people, Chapter 7 bankruptcy—or liquidation bankruptcy—may be the best solution.
This is especially true for Americans who, prior to the passage of the ACA, were uninsured altogether or underinsured. When the ACA took effect, it allowed more than 20 million Americans to obtain health insurance who did not have it before. In addition, some of those people were able to obtain better policies that provided coverage for large, but not catastrophic, medical expenses. It is easy to understand what we mean when we refer to someone who was uninsured—she or he did not have insurance. When we talk about underinsured people, in terms of health coverage, that term typically refers to anyone who does have health insurance but the coverage is insufficient. In many cases, underinsured Americans had catastrophic coverage with very high deductibles—plans that would only pay a percentage of the medical costs in the event of a catastrophe.
Can Healthcare Coverage, and a Federal Mandate, Actually Lower the Rate of Personal Bankruptcy Filings?
The article highlights how other factors besides the ACA may have played a role in the decline in bankruptcy filings over the last 10 years. Most notably, the economy largely has been improving since 2010, making it more likely that Americans are employed and can manage their debts. In addition, the changes to bankruptcy law in 2005 resulted in a more difficult and complicated process for Chapter 7 bankruptcy, as well as higher filing costs. Yet many bankruptcy experts link the decline in filings to affordable and expanded health insurance.
Most importantly, perhaps, are those with pre-existing conditions who do not have to worry that, once their annual or lifetime caps have been reached (which are not permitted under the ACA), they will not have coverage. Now, fewer of those people are facing insurmountable medical debt.
Seek Advice from an Oak Park Bankruptcy Lawyer
With the House passing a bill designed to repeal the ACA, however, medical debt could return and lead to a spike in consumer bankruptcy. We will need to wait and see how the Senate handles the bill—it will need to pass in the Senate in order to go any farther in the process of repealing the ACA.
If you have questions, an Oak Park bankruptcy attorney can help. Contact the Emerson Law Firm today.
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