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Bankruptcy as Implicit Health Insurance

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  • Neale Mahoney

Abstract

This paper examines the implicit health insurance that households receive from the ability to declare bankruptcy. Exploiting multiple sources of variation in asset exemption law, I show that uninsured households with a greater financial cost of bankruptcy 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 three-quarters as large as the average penalties under the Affordable Care Act. (JEL D14, H51, I13, K35)

Suggested Citation

  • Neale Mahoney, 2015. "Bankruptcy as Implicit Health Insurance," American Economic Review, American Economic Association, vol. 105(2), pages 710-746, February.
  • Handle: RePEc:aea:aecrev:v:105:y:2015:i:2:p:710-46
    Note: DOI: 10.1257/aer.20131408
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    References listed on IDEAS

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    1. Anderson, Michael L, 2008. "Multiple Inference and Gender Differences in the Effects of Early Intervention: A Reevaluation of the Abecedarian, Perry Preschool, and Early Training Projects," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt15n8j26f, Department of Agricultural & Resource Economics, UC Berkeley.
    2. Amy Finkelstein & Sarah Taubman & Bill Wright & Mira Bernstein & Jonathan Gruber & Joseph P. Newhouse & Heidi Allen & Katherine Baicker, 2012. "The Oregon Health Insurance Experiment: Evidence from the First Year," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1057-1106.
    3. Anderson, Michael L., 2008. "Multiple Inference and Gender Differences in the Effects of Early Intervention: A Reevaluation of the Abecedarian, Perry Preschool, and Early Training Projects," Journal of the American Statistical Association, American Statistical Association, vol. 103(484), pages 1481-1495.
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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