As Congress continues to develop a replacement option for the Patient Protection Affordable Care Act (PPACA), it’s important to recognize one little-known fact: PPACA has dramatically reduced the number of Americans who file for bankruptcy each year. With medical bills being the biggest contributor to individual bankruptcy, statistics show that bankruptcies have dropped roughly 50% since PPACA’s inception in 2010. While 1,536,799 individuals filed for bankruptcy in 2010, the number plummeted to 770,846 in 2016.
Other factors may have also played a role in the reduction, such as the improving economy and new rules that made filing for bankruptcy more difficult. Most sources agree though, that PPACA was a key driver in the reduction. Below are seven elements showing how PPACA influenced bankruptcy rates through a combination of coverage expansion rules and insurance policy changes.
1. The Individual Mandate
The individual mandate forced consumers to purchase coverage. This bought financial security and protection from high-cost medical claims, the latter which has been cited as the number one cause of bankruptcies. Estimates suggest that the individual mandate increased enrollment by more than 6 million people.
2. The Employer Mandate
The employer mandate required large employers to provide coverage to any full-time employee. Ultimately, this increased the number of covered Americans. Surveys suggest about 15% of employers had to adjust their policies to meet this requirement. It likely had a smaller influence on enrollment compared to the individual mandate since most large employers were already offering coverage.
3. Medicare Expansion/State Mandated Coverage
The expansion of Medicaid to millions of low-income Americans, many of them who were previously uninsured, was fundamental to enrollment expansion. Prior to 2014, low-income adults who weren't disabled and didn’t have dependent children, had been excluded from Medicaid. According to the Kaiser Family Foundation, 11.9 million Americans were newly eligible for benefits due to the PPACA. In fact, 32 states expanded Medicaid, and states that mandated coverage, like Massachusetts, had similar reductions in bankruptcy rates.
4. Mandating Coverage for Pre-Existing Conditions
This policy change required insurance companies to cover conditions they otherwise previously could have excluded. This mainly resulted in lower costs for consumers which in turn did help to decline bankruptcies.
5. Removing Annual and Lifetime Limits on Policies
Prior to the PPACA many policies had individual lifetime limits (e.g. $1,000,0000) and if someone were to become very sick, they could exhaust their coverage and be left paying for remainder of their care, often resulting in bankruptcy.
6. Instituting Individual Out of Pocket Limits
This benefit change favorably impacted the most consumers as it put an annual cap on how much the individual consumer had to pay each policy year for medical coverage. For 2017, the annual limit was $7,150. If a consumer reaches this amount, the insurance company is required to pay 100% of the remaining cost.
7. Allowing Children to Remain on the Policies until Age 26
This coverage expansion alone is estimated to have kept 3 million young adults covered that otherwise would have potentially lost coverage due to aging out of the plan.
While most agree the PPACA is not perfect, it does warrant consideration that a repeal effort could not only set the uninsured rate back to pre-PPACA levels, but potentially contribute to an increase in personal bankruptcies stemming from medical bills. CBO estimates are roughly 15 – 30 million Americans would lose coverage under a repeal scenario over the next 10 years.
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