How Obamacare Helped Slash Personal Bankruptcy by 50%

A Rare and Costly Diagnosis

Since the start of the year, more than 2,000 consumers have answered an online questionnaire from Consumer Reports’ advocacy and mobilization team, sharing their experiences with the ACA. Katie Weber of Seattle was one of them.

In 2011, she had just landed her first job out of college, as a teacher with AmeriCorps, she explains in a phone interview. That’s when the unusual numbness in her hand began, which she–and her doctor–at first mistook for a pinched nerve. Then came debilitating headaches and nausea and, ultimately, a diagnosis of medulloblastoma, a fast-growing cancerous brain tumor.

The treatment for her tumor was straightforward: surgery, radiation, then chemotherapy. Figuring out how to pay for it was much less clear. She worried that the insurance she had through AmeriCorps wouldn’t cover enough of her bills.

“My dad said to me, ‘Your health is the most important thing. If you have to declare bankruptcy at age 23, it’s no big deal,'” Weber says.

Because of the ACA, she says, it never came to that. After her year with AmeriCorps, the new healthcare law enabled her to get coverage under her parents’ insurance plan.

The ACA provisions required that the family’s insurance company cover her even though she had already been diagnosed with cancer. That would not have been the case before the ACA, which mandates the coverage of pre-existing conditions for all consumers.

Later, when she aged out of her parents’ insurance, Weber was able to enroll in Apple Health, Washington state’s version of Medicaid, a program that was expanded once the ACA was passed. That coverage, she says, has been crucial to her financial and medical well-being, especially once the cancer returned last fall.

Weber says she now spends more time discussing treatment options and less time worrying how she’ll pay for MRIs and drugs. These are covered in full under her Apple Health policy.

“Cancer is really expensive,” she says. “My insurance saved my life.”

Numbers Plummet

If you want further testimony about how much personal bankruptcies have dropped over the past decade, talk to Susan Grossberg, a Springfield, Mass., attorney.

For more than 20 years she has helped consumers push the financial reset button when debt triggered by divorce, unemployment, or a costly illness or medical episode became too much to handle. “Medical debt can get really big really quickly,” Grossberg says. “When you’re in the emergency room they’re not checking your credit score while they’re caring for you.”

With the advent of the ACA–and before that, expanded state healthcare in Massachusetts–she says fewer clients with large medical debts walked through her door.

Grossberg adds that her bankruptcy business has slowed so much that she has been forced to take on other kinds of legal work–landlord-tenant and housing discrimination cases–to cover her own bills.

The American Bankruptcy Institute suggested that veteran Chicago bankruptcy attorney and trustee David Leibowitz could also help parse the reasons for the decade-long decline.

First, he says, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it more difficult for consumers to file for bankruptcy. The law required credit counseling and income verification and forced many consumers to seek protection under Chapter 13, which restructures, but does not eliminate, most debt. The piles of paperwork also meant most filers needed a lawyer, which made bankruptcy more costly and therefore not an option for many poor consumers.

Then there was the economy. After a slow and steady recovery following the housing crisis of 2008, Leibowitz explains that American consumers generally had fewer problems with their mortgages, better employment prospects, and greater access to credit, which made them less likely to file.

The final factor, according to Leibowitz, has been the ACA, which afforded health coverage to many more consumers and expanded protections for all.

Of course, not everyone sees such a direct connection between the decline in bankruptcies and the emergence of the ACA.

Thomas P. Miller, resident fellow at the American Enterprise Institute and co-author of “Why ObamaCare is Wrong for America” (HarperCollins, 2011), cautioned against “reaching broad conclusions” because the subject is so complex.

“Certainly there are fewer people declaring bankruptcy, and certainly fewer are declaring bankruptcy because of healthcare spending,” he says. But his earlier research suggested that some studies exaggerated the degree to which high healthcare bills cause bankruptcies. “They tended to reflect other problems with credit card balances well beyond healthcare,” he says. “It stems from multiple causes.”

Figuring Out Why

Over the past decade, determining the cause-and-effect relationship between medical debt and bankruptcy has become a political football, particularly during the years the Obama administration was trying to pass the ACA through Congress.

The truth is that it’s not that easy to determine how many bankruptcies are caused by medical debt. Examining the paperwork doesn’t always offer insight because debtors often juggle their indebtedness, for example, using a credit card to pay an outstanding medical bill while leaving other debts unpaid.

But a 2014 study from Daniel Austin, a bankruptcy attorney and, at the time, a professor at the Northeastern University School of Law, offers some of the most in-depth research to date.