The number one reason for bankruptcy is not an addiction to Gucci bags and Mercedes Benz automobiles. Medical bills are the leading cause of personal bankruptcy in the United States. They are often unexpected, involuntary, and large.
Fortunately, over the last six or seven years, personal bankruptcy decreased by 50%. Some experts may claim that the decrease in cases is due to the fact that changes to bankruptcy laws in 2005 made it more difficult and costly to file. Others claim the improving economy means less bankruptcy. However, experts can almost all agree that the Affordable Care Act (ACA) played a major role in the decline.
Ironically, bankruptcy cases declined during the time frame when the 2010 federal law designed to provide health insurance for more Americans took effect and the ACA was born. Today, as legislators look for ways to repeal and replace, they should understand the financial consequence of the ACA as stated above.
In the Trump era, the ACA is threatened. In October of 2017, President Trump issued an executive order relaxing some of the requirements of the ACA driving up the cost of health care for the sick and those with preexisting conditions. In December of last year, changes to the ACA were piggybacked on to the new tax bill, eliminating the ACA individual mandate requiring by law that all persons obtain health insurance or be fined.
Loosening the Reigns
The executive order allows insurance purchases across state lines and prioritizes association health plans (AHPs), short-term, limited-duration insurance (STLDI), and health reimbursement arrangements (HRAs). Being able to cross state lines could be a positive notion because it allows for more competition. However, these low-cost short-term health plans can circumvent some of the mandates created under the ACA such as accepting preexisting conditions and coverage for various medical conditions. The order eases access to association health plans which don’t need to provide the mandated coverage. That means the most vulnerable Americans – the sick, the elderly and the poor – may not have the insurance coverage they need. Cheap insurance plans that provide little coverage for many treatments will siphon healthy families from the plans, raising prices on the sick. The new order works well for healthy families, until they are not. When they need treatments that are not covered by their insurance, medical bills will pile up until they teeter on the scale to bankruptcy. Cheap insurance gives a false sense of security.
Eliminating the Individual Mandate
The elimination of the individual mandate will cause fewer Americans to be insured this year. The ACA put the mandate in place to make sure that it’s not just sick people who are obtaining health insurance. By widening insurance risk pools to include a mix of ages, healthy and sick individuals alike, premiums go down and people don’t sign up just when they’re sick. Without the mandate, poorer, medically needy people with an “it-could-never-happen-to-me” attitude may not sign up for insurance because they lose the sense of urgency without the mandate. This will leave them potential vulnerable to unexpected medical bills.
The decrease in personal bankruptcy filings seen since the beginnings of the ACA could slowly trend upward. Regardless of what changes occur to federal law, high medical bills can lead to bankruptcy. My office is closely watching the frenzy of changes in health care policy. We are ready to help anyone hit with exuberant medical bills they can’t pay. We offer free consultations and we are working hard to help every American.