A new analysis by Consumer Reports shows that the Affordable Care Act (ACA), also known as Obamacare, was among the likely factors that helped with a big decrease – nearly 50 percent – in personal bankruptcy filings in the last six years. Other factors such as new bankruptcy laws, a rebounding economy and tighter credit requirements, also likely helped reduce personal bankruptcy filings, which dropped from 1.54 million in 2010 to 770,846 in 2016, the analysis states. There is no real way to know what made the biggest difference in that decrease because individuals who file for bankruptcy don’t state a reason for the filing.
A MarketWatch report states that personal bankruptcies actually began to drop before the ACA was implemented even though some parts of the law, including expanding family health plans to young adults, began as early as in 2010. Still, Consumer Reports says the health care law in all likelihood played a major role in the drop in personal bankruptcy filings. The ACA reduced uninsured rates to historic lows, with a major portion of that expanded insurance coverage for low-income Americans.
Leading Cause of Personal Bankruptcies
ACA’s protections included health insurance for individuals with pre-existing conditions, reduced premiums for seniors and an end to health insurers’ capping annual or lifetime benefits. In addition, ACA subsidized individual health plans for many low- and middle-income individuals. Medical bills, which are notoriously expensive and unpredictable, are the leading cause of bankruptcy in the United States.
Some of the other reasons why people file for personal bankruptcy include job loss, divorce or reduced income. In 2009, a Harvard study noted that medical issues were responsible for 62 percent of personal bankruptcy filings with the U.S. while a NerdWallet analysis based on the Harvard study put that number at 57 percent. There could be caveats to these studies including the fact that they don’t factor in indirect reasons for medical bankruptcies such as a job loss or death in the family that lowered income.
The issue of the ACA’s merits and demerits take center stage as Republicans in Congress attempt to repeal and replace the healthcare law. While healthcare premiums have no doubt gone up substantially under Obamacare and high deductible plans expose people to greater out-of-pocket expenses, it is possible that premiums and deductibles could increase further if the new healthcare law goes into effect.
Strategies to Deal with Medical Debt
Medical bills are quite serious and can cripple your finances. Hopefully, you can deal with your medical debt before it pushes you to bankruptcy. Here are a few tactics and strategies that might help:
- Do not ignore your bills. Doing so will only make your situation worse. Medical providers will only collect on your account for a few months before they send it over to a collection agency. At that point, the medical bill will get on your credit report and adversely hurt your future chances of borrowing money. You can also be sued for the debt, which could result in a judgment, bank levy or even wage garnishment.
- Read your mailings thoroughly to make sure that you have a balance due. Understand the difference between a medical bill and an “explanation of benefits,” which is simply an explainer on what’s been paid on your behalf. The Explanation of Benefits could also serve as a heads-up to medical bills that are on your way. For example, if the Explanation of Benefits shows that the insurance company only paid part of the claim, you can expect the doctor’s office or hospital to send a bill out soon.
- Understand that medical billing can be complex and mistakes happen quite often. Make sure that the doctor’s office billed the insurance company the right amounts for the right services and follow up with the insurance company to find out why your bill wasn’t paid. Being proactive helps clear up errors and could potentially save you thousands of dollars.
- Pay off the bills if you are able to do so. You may be able to pay medical bills, especially smaller ones if you have money in your savings account or emergency fund. Just write a check and mail it to the billing address on your bill. If you are not paying the balance in full, call the provider and set up payment arrangements before the debt is sent to a collection agency.
- Ask if payment plans are available. Make sure to go over your budget to figure out what payments you can afford. As with any other bill, make your payments on time each month. Otherwise, your account may still be sent to a collection agency, which could adversely impact your credit.
- Find out if you qualify for Medicaid, which is health insurance for low-income residents who cannot afford their medical care expenses. Contact your local Medicaid office to find out if you qualify. Your child may be eligible for Medicaid even if you are not.
Filing for Bankruptcy
When you run out of all options, filing Chapter 7 bankruptcy may help erase your medical debt. If you qualify for Chapter 7 bankruptcy, your discharge will wipe out your medical debt along with your other general unsecured debts. There is no limit to the amount of medical debt you can discharge in a Chapter 7 bankruptcy. However, in order to qualify for Chapter 7, your disposable income must be low enough to pass what is known as a means test. Remember, when you file for Chapter 7, any medical bills you paid with your credit card can also be discharged, along with the rest of your credit card debt.
If you choose to file Chapter 13, medical bills will be lumped with your other general unsecured debts in your repayment plan. The amount you must pay general unsecured creditors will depend on your income, expenses, and nonexempt assets. You may not be eligible for Chapter 13 bankruptcy if your medical bills and other debts exceed the allowed Chapter 13 debt limits.
Our experienced bankruptcy attorneys in Mesa at The Pew Law Center, PLLC, have helped numerous clients get a fresh start and secure their financial future. Let us help you determine the best course of action to help discharge your medical debt. Call us at 480-745-1770 for a free consultation.