For decades, medical bills rose to become one of the largest causes of personal bankruptcy filings in the United States. But after hitting record levels in 2005, Quartz notes that personal bankruptcy filings are are now in their twelfth straight year of decline.
What’s the reason?
Isolating the reasons remains difficult. As it happens, the decline began the same year Congress passed the Affordable Care Act (ACA). Virtually every published researcher agrees that the ACA has contributed to a drop in the number of bankruptcies, yet teasing out precisely how much Obamacare contributed to this has lead researchers to estimate anywhere from about 10% to more than 50% of the decline.
The ACA has two ways ways to reduce medical debt: capping annual and lifetime out-of-pocket medical expenses, and expanding coverage to millions. Both have contributed to a steep decline in the number of Americans unable to afford medical care. And that has helped to dramatically reduce the number of personal bankruptcies.
As a result, recent efforts in Congress to repeal and replace the ACA could also have broad ramifications on personal bankruptcy.
What lawmakers need to understand is that medical debt isn’t like other debt. Because it’s almost always unexpected, it can have broad ramifications on a person’s entire financial life.
What makes medical debt so insidious is that it often strikes at the worst time: a person gets sick, incurs massive expenses, loses their job (and thus often their insurance), and destroys their finances (which may already be precarious). Ultimately, it’s rarely just one form of debt that topples a person’s finances: medical debt may just be the final straw. A crippling medical bill can trigger years of otherwise avoidable economic misery—it can destroy life savings and access to credit for homes, cars or other assets that could improve their lots—and diminish prospects for their children.
That’s what many policymakers don’t recognize.