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Bankruptcy Trustee, Janet M. Nesse, Suspects Increase in Personal Bankruptcy Filings as Result of Repeal of Affordable Care Act

I was first a Chapter 7 Trustee in the United States Bankruptcy Court for the District of Maryland in 1983. Although each bankruptcy case is unique, I have always been struck by the number of cases in which massive health care debt is the primary reason for a bankruptcy filing. Sometimes the medical debts are obvious, with dozens of doctors, dentists and hospitals listed as creditors in the initial bankruptcy filings. Other times the debts are hidden in credit card debt resulting from payments to professionals who require payment up front, along with co-pays and deductibles paid by those with health insurance. Payment to pharmacies for prescription drugs are another major component of credit card debt. 

About five years ago, all of us involved in the world of personal bankruptcies noticed a marked decline in the number of cases being filed. More specifically, I saw far fewer case in which health care was the primary source of debt. Debtors were still showing unpaid bills for co-pays and coinsurance, but not for the gigantic debts that can accrue from a single hospital stay.

My observations are confirmed by a recent analysis by Consumer Reports. According to Consumer Reports, personal bankruptcy filings have decreased by about 50% over the last six years, from 1,536,799 in 2010 to 770,846 in 2016[1]. Consumer Reports and other analysts attribute the decrease to a number of factors, including an improving economy and tighter credit requirements. However, the analysis concluded that the expanded coverage provided under the Affordable Care Act (ACA or Obamacare) played a significant role in the decline of personal bankruptcy filings. Consumer Reports noted that while the subject is complex, some researchers have concluded that “medical debt is the single largest factor in personal bankruptcy.”

As evidence of the impact of the ACA, Consumer Reports points the following evidence: In 2010, the year Congress enacted the ACA, 1,536,799, personal bankruptcies were filed.  In 2010, the year the ACA was first “rolled out,” there were 1,362,847 filings. By 2014, the year the ACA was fully implemented, the number had dropped to 909,812.  By 2016, only 770,846 personal bankruptcy filings were filed. However, with the potential repeal of the Affordable Care Act, it is suspected that the number of personal bankruptcy filings will increase, once again having Debtors filing for bankruptcy relief due to medical bills as the primary reason for filing.

[1] “How the Affordable Care Act Drove Down Personal Bankruptcy,” www.consumerreports.org, May 2, 2017.