Medical Bills, Bankruptcy, and Trump – How the Pending AHCA Bill Could Affect Bankruptcy Filings
Posted on Wednesday, May 24th, 2017 at 9:37 am
The following post is part of our Law Student Blog Writing Project, and is authored by Ian Fasnacht, a law student from Ohio State University Moritz College of Law.
The Affordable Care Act (ACA), also known as Obamacare, took effect in 2010 and has been the center of political tension for almost a decade. From 2010 to 2016, personal bankruptcy filings have decreased by 50%. Courts do not require individuals to disclose why they are declaring bankruptcy, but research indicates medical bills are the “single largest factor in personal bankruptcy” accounting for between 50 and 62% of all personal bankruptcy filings.
Also illustrative is 2010 Massachusetts, which had been operating under Romneycare for several years. Romneycare served as a base model for the ACA. Massachusetts in 2010 had a 30% lower personal bankruptcy filing rate than any other state in the Union. The average Massachusetts medical bills were also one-third of the average medical bills in every other state.
Because of the close correlation between personal bankruptcy filings and medical bills, the ACA is considered a driving factor in the decline of personal bankruptcy filings in recent years. Medical bills can be expensive and unexpected, which forces families and individuals into debt.
Potential Changes Under Trump
With President Trump and Congressional Republicans working to repeal and replace the ACA, will medical bills increase and cause personal bankruptcy filings to increase? Two proposed changes that could increase the number of personal bankruptcy filings are eliminating the individual mandate and retracting the expansion of Medicaid.
A. Eliminating the Individual Mandate
Eliminating the individual mandate may lead to an increase in personal bankruptcy filings as people choose to forego medical insurance due to higher premiums. The individual mandate requires all persons to purchase health care insurance or pay a penalty to the IRS for failing to have health insurance.
This provision was originally included in the ACA to drive down the average policy premium despite insurance companies being required to offer medical insurance regardless of a pre-existing condition. One of the criticisms is premium costs have risen in some areas of the country, and the individual mandate forces people to pay higher premiums.
However, if cheaper insurance options are not made available people may choose to not purchase health insurance, which would leave them financially vulnerable to unexpected medical bills.
If the final revision of the AHCA bill does not eliminate the individual mandate, the Trump administration could effectively eliminate the penalty by no longer requiring the IRS to ask taxpayers to disclose if they have purchased health insurance. Without the knowledge of who does or does not have insurance, the IRS would lose the ability to efficiently issue a penalty for not having insurance.
Instead of an individual mandate, the proposed AHCA bill would allow insurance companies to charge up to a 30% penalty to those who forego insurance and then purchase insurance after they have been diagnosed with an illness. This provision is designed to persuade rather than mandate participation. This change could have the same effect as people not purchasing health insurance because individuals may not be able to afford the higher deductibles for emergency health and may be forced to file bankruptcy.
B. Decreases in Medicaid
The AHCA may eliminate the Medicaid expansion provision that accounted for half of all insurance coverage gains under the ACA. The ACA included a block grant to states to expand their Medicaid programs. The expansion would provide Medicaid to anyone making 138% times the poverty line ($33,600 for a family of 4). States could refuse the Medicaid expansion, but 31 states, including Ohio and Kentucky, accepted the expansion.
The AHCA may eliminate the Medicaid expansion offered to states and return Medicaid coverage to pre-ACA levels (100% of the poverty line or $24,300 for a family of 4). The potential change would require all those who do not qualify for medical expansion to purchase insurance in the open marketplace. If there is not an individual mandate, those removed from Medicaid may choose not to purchase health care insurance and be at risk of unexpected medical bills. Alternatively, they may select a policy with a low premium but high deductible and minimal coverage. If a severe illness occurs, minimum coverage policies may not offer substantial financial assistance and force individuals or families into debt.
No changes to the ACA are finalized, but potential changes may lead to higher personal bankruptcy filings. A better understanding of potential effects on personal bankruptcy filings will be available after changes to the ACA are finalized.
Medical Bills, Bankruptcy, and You
Regardless of what changes occur to federal law, high medical bills can lead to bankruptcy. Bankruptcy may provide a solution for financial hardship created by burdensome medical bill debt.
A. Medicals Bills Can be Discharged in Bankruptcy
Medical bills are considered an unsecured debt, in contrast to secured debt, such as a home mortgage secured by the value of the home. All unsecured debt is dischargeable in chapter 7 bankruptcy, except for student loans. Chapter 13 bankruptcy requires the filer to repay part of their debt, but medical bills can be partially dismissed. Chapter 7 and chapter 13 bankruptcy have different income and debt requirements, it is best to speak with an attorney to determine which, if any, is best for you.
B. Spouse and the Doctrine of Necessity
Generally, one spouse is not obligated to pay the debts of another spouse. However, if assets were held jointly, i.e. joint credit cards, then the surviving spouse would be obligated to pay. One exception to the general rule is the doctrine of necessity.
Under Ohio’s doctrine of necessity, spouses are responsible for all bills of necessity, such as food, shelter, and health. Therefore, some medical bills may be considered a necessity and debt collectors can sue a surviving spouse. Bankruptcy may be a solution to discharge debts of necessity.
Kentucky has a similar doctrine of necessity, but only holds the husband liable for the debts of his wife; the wife is not liable for the debts of her husband.
Debt collection agencies do file suit over unpaid medical bills, which can lead to liens or seizure of real and personal property. However, collection agencies will often offer the opportunity to establish a payment plan before filing suit. Speaking with an attorney can help you understand your rights and determine what debts must be paid.
C. Filial Responsibility Laws
Ohio and Kentucky have filial responsibility laws, which hold adult children responsible for caring for their parents. Care can include assisted living or medical bills. However, these laws are rarely enforced due to other available assistance.
Filial responsibility laws are rarely enforced because nursing homes need to prove the parent resident is unable to pay. However, Medicaid is typically available if parent residents do not have enough money. If Medicaid bills remain unpaid, the State can collect from the parent’s estate.
Generally, parental debts are not their children’s responsibility and it may be best to contact an attorney to understand your rights and obligations.
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