Health-care reform and bankruptcy: evidence from Massachusetts

Abstract

Previous research claims that medical expenses are a leading cause of bankruptcy in the United States. Using data from the 50 states and the District of Columbia from 2001 to 2010, this article examines the relationship between Massachusetts' 2006 health-care reform and bankruptcy filings. After including state- and year-fixed effects and other covariates, the results indicate that, contrary to expectations, bankruptcy filings increased following Massachusetts' move towards universal medical insurance coverage.

Keywords:

• bankruptcy
• health-care reform
• health insurance
• medical expenses

JEL Classification:

• I18
• K35

Notes

¹ Other articles finding a relationship between medical expenses or the lack of medical insurance and bankruptcy include Feldstein (1998), Jacoby et al. (2001) and, to a lesser extent, Dranove and Millenson (2006).

² Although the Massachusetts health-care reform was enacted in April 2006, it may take some time for a law's provisions to be fully implemented. To guard against this possibility, we repeated the estimation below with the MASSREFORM variable defined as taking a value of 1 for 2007–2010. The results are nearly identical to those presented below.

³ If the point estimate seems implausibly large, recall that bankruptcy filings are expressed as rates per 100 000 population. As noted above, the uninsured rate in Massachusetts has fallen by 5.7 percentage points since the reform was enacted. An increase of about 212 bankruptcy filings per 100 000 people is an increase of 0.212 percentage points that implies an elasticity of approximately 0.037 (=0.212/5.7).

⁴ Source: http://www.statehealthfacts.org/comparetable.jsp?ind=649&cat=1.

⁵ Authors' calculations based on the Case–Shiller housing price index available at http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us-.

⁶ Kanter (2008, p. 74) indicates that the Massachusetts Uncompensated Care Pool was redirected into insurance subsidies.

⁷ Kanter (2008, p. 78) reports that 68% of people signing up for unsubsidized policies through the Connector have chosen plans offering high deductibles and other features that leave the policyholders exposed to significant medical expenses.