Bankruptcy as Implicit Health Insurance
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).
Neale Mahoney, 2015. "Bankruptcy as Implicit Health Insurance," American Economic Review, vol 105(2), pages 710-746.