Medical Bankruptcies: How the ACA Stands to Reduce Them, How States Are Blocking the Way

By James O'Brien March 22, 2014

The single largest source of personal bankruptcies in the United States is debt resulting from medical bills. According to NerdWallet Health, some 57% of U.S. personal bankruptcies can be directly tied to medical bills (and that's excluding factors such as related job losses, which push the percentage higher). However, there's evidence that the Affordable Care Act could help to reduce that rate. A plan similar to the ACA has already cut medical bankruptcies in the state that has offered expanded access to health care the longest.

Massachusetts -- where the Act Providing Access to Affordable, Quality, Accountable Health Care went into effect in 2006 -- amounts to a laboratory for how the ACA can reduce medical bankruptcies, if freed from partisan efforts at the state level to block the law.

Recent research helps paint the picture:

• Following the 2006 passage of expanded health care in Massachusetts, the proportion of bankruptcies in the state attributed to medical bills dropped from 59.3% in 2007 to 52.9% in 2009, according to a City University of New York School of Public Health study.
• A 2013 study by the Federal Reserve Bank of Chicago showed that personal bankruptcies in Massachusetts had fallen by 18% since 2006. This was attributed to possible "spillover effects" from better health resulting in better financial well-being.
• Large-scale delinquencies ($5,000 or more) also decreased in Massachusetts, and overall financial circumstances for state residents seemed to improve. Again, the spillover effect was considered a possible cause.

Massachusetts' health care reform served in significant ways as a template for the ACA. In other words, for a snapshot of what the 2010 law can do, look to Massachusetts.

However, unlike Massachusetts, the U.S. is facing a fragmented landscape when it comes to states' participation in the new universal health care system.

States of resistance
An educated health-care consumer may be what it takes for the ACA to achieve the success of Massachusetts' health insurance mandate. But there are obstacles to that goal.

As Robin Gelburd, president of FAIR Health, puts it, consumers now need to understand details of their health insurance plan that used to be backstage matters -- ones handled by the old business-to-business arrangements that resulted in employers providing fully fleshed-out health care plans for their employees. The new milieu under the ACA, however, prompts the consumer to make informed and financially sustainable choices about health care packages. "You have this bright light shining on them, on this stage," Gelburd says, "but they've not really been given the lines to the play."

If the best-case scenario is a well-informed ACA health-insurance customer, a worst-case scenario is to try to educate that consumer base while elected officials delay access to well-organized resources. That's not, after all, how it happened in Massachusetts.

"The implementation went quite smoothly," says John Auerbach, director of Northeastern University's Institute on Urban Health Research and Practice. "Healthcare reform in Massachusetts was embraced as a bipartisan issue and not a political football." Examples of opposition from the political playbook are numerous:

• Some state politicians are pursuing ACA defunding initiatives, cutting off the monies required to implement the state health insurance marketplaces and other ACA infrastructure under the federal law.
• Opponents of the ACA at the state level seek to block the expansion of Medicaid, which is crucial to ensuring coverage for the poorest and most disadvantaged Americans, who may not be able to afford their own private plans via exchanges.
• In more than a dozen states, including Ohio and Missouri, legislators are seeking to limit the actions of federal "navigators" -- experts meant to help consumers get the best results from health care exchanges. One such bill is now in the hands of the state Senate in Tennessee.
• South Carolina recently raised the issue of "anti-commandeering" measures, maintaining that, under earlier Supreme Court rulings, states should not have to draw upon their own resources to implement Congressional laws. This could potentially block an ACA rollout in South Carolina -- in the process perhaps creating a template for similar resistance elsewhere.

However these actions turn out, what's certain is in states where leaders are locked in ideological combat against the ACA, consumers are left to turn to the federal ACA website.

A key difference: State exchanges, where implemented, are built to take into account all the particulars of that entity's health care systems. Take Washington, for example, where designers of the health care exchange were able to roll out a clean database and construct an eligibility-checking process from scratch.

"At the state level, some already have direct state experience with the CIOs on the health-care side of the state government," Gartner analyst Robert Booz told the Seattle Times in an October 2013 article. "And just the knowledge of how the state interfaces with Medicaid puts exchanges a step ahead."

The federal ACA website, by comparison, has to cope with integrating its portals with the health care data of dozens of states not offering their own exchanges. It crashed for many users in 2013, just after rollout, and it was still causing problems in mid-March, when 84,000 Michigan residents discovered they couldn't complete a Medicaid enrollment process due to a federal website glitch.

"In certain states it's more challenging than others," Gelburd says. "This very important aspect of people's lives, how they insure for health care needs, has become very intertwined with this national debate and probably has slowed the ability of some, in some jurisdictions, to get the information they need."

And local resources -- if you ask experts such as Auerbach, who has studied Massachusetts' successful health-care rollout for years now -- are key to getting residents insured and out of the medical-bankruptcy loop. The models we have tell the story: If a state works to roll out expanded care to its residents -- instead of embroiling them in political games -- medical bankruptcies start to turn around.

Individuals need help to make the Affordable Care Act work for them and avoid medical bankruptcies. When it does, the data we have suggests a way out of the U.S.' undesirable No. 1 spot.