Mass. Health Law Cut Debt, Bankruptcy

Medical debt is a primary cause of bankruptcy.  But new research finds that the Massachusetts health reform, by extending health insurance to a greater share of the state’s population, has reduced residents’ total debts and bankruptcy filings and improved their credit scores.

This experience is especially relevant now that the federal Affordable Care Act (ACA), modeled after Massachusetts’ 2006 reform, has effectively made health insurance mandatory nationwide, starting this year.

Health insurance is central to a household’s financial health, because one medical catastrophe can blow a hole in their savings account or throw them into bankruptcy.  Most households who lack coverage are in the bottom half of the income distribution, and more than one in three uninsured individuals can’t afford his medical bills and is forced to pay them over time. Two out of three individuals paying over time owe more than $2,000, and one out of five owes more than $8,000.

Researchers at the Federal Reserve Bank of Chicago and Notre Dame examined the Massachusetts reform’s financial benefits for state residents between the ages of 18 and 64, using a Federal Reserve data set based on credit reports. Between 2006 and 2012, health reform increased the state’s insured population from 90 percent to 97 percent of all residents.

The benefits included:

• A 10 percent reduction in the share of all debts that are past due and a large reduction in the incidence of past due debts exceeding $5,000.
• A 2.5 point increase in state residents’ average credit scores.
• A slight decline in personal bankruptcy filings.
• The financial benefits of expanding health care coverage were strongest for those whose credit scores fell below the median – or middle – score for all state residents.

Now that the ACA has passed, expect a study to see whether it has been similarly effective.