Massachusetts, reform and bankruptcy

Bankruptcy research has produced varying reports on the role of medical debt in household financial distress. Studies suggest that medical bills are responsible for one-quarter to more than half of bankruptcies.

Now, two separate studies have looked to Massachusetts—the state that mandated individual health insurance ahead of the nation—for more information.

Both studies examine whether household bankruptcy dropped after enactment of the 2006 law to revamp Massachusetts healthcare. The law mandated health benefits and fined those without coverage; subsidized insurance for low-income households; and expanded Medicaid, the safety net insurer for the poor.

One study by Sarah Miller, a doctorate candidate in economics at the University of Illinois, found personal bankruptcy dropped as more Massachusetts residents gained health insurance.

But the second study found no significant change to medical bankruptcy, which suggests reform “did little to upgrade existing coverage or reduce costs, leaving many of the insured with inadequate financial protection,” researchers David Himmelstein, Deborah Thorne and Steffie Woolhandler wrote.

The conflicting results underscore the challenge Congress, states and federal agencies face as they wrangle over expansion of private insurance under the Patient Protection and Affordable Care Act.

Miller, in unpublished research (PDF), found Massachusetts counties with the highest rates of uninsured saw bankruptcies drop 20% compared with other counties across the United States with similar rates of uninsured between 2006 and 2009.

Her research found no significant changes to unemployment or business bankruptcies that would suggest the economy contributed to the bankruptcy slowdown in Massachusetts.

Results show bankruptcy declined more significantly for those with income that ranked in the bottom half for the state, but wealthier households also saw bankruptcies drop, the draft said. Miller noted results of another recent study that found consumer bankruptcies declined 8% when households eligible for Medicaid increased by 10 percentage points. (Hat tip to Tal Gross, co-author on the Medicaid and bankruptcy research, for pointing out Miller's research.)

Meanwhile, bankruptcy surveys and court records complied by Himmelstein, Thorne and Woolhandler suggest illness or medical bills contributed to a growing number of Massachusetts bankruptcies between early 2007 and 2009.

Researchers broadly defined medical bankruptcy, which authors contend captures medical debts hidden as outstanding credit card balances or second mortgages.

Medical bankruptcy included survey respondents who reported medical bills of at least $5,000 or more than 10% of income. Also included where those who said illness or medical bills were cause of bankruptcy; respondents who said they or a spouse lost at least two weeks of income to illness or care of ill family; and those who use mortgages to pay for medical care.

An estimated 10,093 Massachusetts bankruptcies in 2009 were the result of medical problems or debt compared with 7,504 in 2007, the researchers reported in the American Journal of Medicine. The study found a drop in the percentage of medical bankruptcies: 52.9% in 2009 from 59.3% in 2007.

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