Bankruptcy as Implicit Health Insurance

Neale Mahoney

NBER Working Paper No. 18105
Issued in May 2012
NBER Program(s):   HC   HE   LE   PE

This paper examines the implicit health insurance households receive from the ability to declare bankruptcy. Exploiting cross-state and within-state variation in asset exemption law, I show that uninsured households with greater seizable assets make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth-at-risk are more likely to hold health insurance. The implicit insurance from bankruptcy distorts the insurance coverage decision. Using a microsimulation model, I calculate that the optimal Pigovian penalties are similar on average to the penalties under the Affordable Care Act (ACA).

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Acknowledgments

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