The Affordable Care Act and medical banktruptcy


When Congress passed the Affordable Care Act, it set out to accomplish many reforms, including reducing medical bankruptcies. President Obama said, people—with and without insurance—“have gone bankrupt because of health care.”

The President is right! Medical bankruptcy is a serious problem, responsible for approximately 54% of all personal bankruptcies. But will the Affordable Care Act be successful at reducing medical bankruptcies?

The answer? Sorta.

The ACA does impose maximum caps on out-of-pocket expenses: $5,950 for individuals, $11,900 for families. And those efforts will not be in vain; the average medically bankrupt family owes nearly $18,000 and will benefit from the cap. But its not that simple. The ACA’s commitment to maintaining a competitive market for insurance drives companies to use consumer-choice type insurance plans that have high deductibles in order to keep costs low.

Furthermore, the 80/20 rule requiring insurance companies to spend at least 80% of premiums on medical services and not overhead, will force them to cut back on managed-care plans.

These consumer-choice plans will leave many families pushing up against these caps. Ryan Sugden, in the Journal of Law and Policy, points out: “When the ‘double whammy’ of an illness hits—rising medical costs meeting reduced income—even the Affordable Care Act’s out-of-pocket cap will be insufficient to protect against a budgetary crunch all too familiar to many low- and middle-income families.”

That is not to say that the ACA will have no effect on medical bankruptcies. For many, people insurance works well and for many having access to insurance is sufficient. But, as long as health care maintains its market-oriented approach there will be winners and losers, and bankruptcy is a natural part of that cycle.

Essentially the ACA will likely reduce the total number of medical bankruptcies, but it will further reinforce a system that makes some inevitable. We are faced with a choice; between accepting some bankruptcy as inevitable or pursuing a more substantial reform project that forces us to leave behind much of the current system.

In the short-term, the ball is in Minnesota’s court. According to rules issued by HHS, states will be responsible for determining whether or not the ACA-mandated exchanges will be “active purchasers” or an “open marketplace.” Exchanges that are active purchasers will be able to extract concessions from insurers while an open marketplace allows all insurance plans that meet the ACA’s requirements to be sold on the exchange. By being aggressive and establishing an active purchasing exchange that can negotiate for low deductibles and larger benefits, Minnesota can control costs and prevent some medical bankruptcies.