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Health insurance and the consumer bankruptcy decision: Evidence from expansions of Medicaid

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  • Gross, Tal
  • Notowidigdo, Matthew J.

Abstract

Anecdotal evidence and several observational studies suggest that out-of-pocket medical costs are pivotal in a large fraction of consumer bankruptcy decisions. In this paper, we assess the contribution of medical costs to household bankruptcy risk by exploiting plausibly exogenous variation in publicly provided health insurance. Using cross-state variation in Medicaid expansions from 1992 to 2004, we find that a 10 percentage point increase in Medicaid eligibility reduces personal bankruptcies by 8%, with no evidence that business bankruptcies are similarly affected. We interpret our findings with a model in which health insurance imperfectly substitutes for other forms of financial protection, and we use the model to present simple calibration results which illustrate how our reduced-form parameter estimate affects the optimal level of health insurance benefits. We conclude with calculations which suggest that out-of-pocket medical costs are pivotal in roughly 26% of personal bankruptcies among low-income households.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 7-8 (August)
Pages: 767-778

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:7-8:p:767-778

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Health insurance Bankruptcy Medicaid;

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References

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  1. David B. Gross & Nicholas S. Souleles, 1999. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 98-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. David M. Cutler & Jonathan Gruber, 1995. "Does Public Insurance Crowd Out Private Insurance?," NBER Working Papers 5082, National Bureau of Economic Research, Inc.
  3. Currie, Janet & Gruber, Jonathan, 1996. "Saving Babies: The Efficacy and Cost of Recent Changes in the Medicaid Eligibility of Pregnant Women," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(6), pages 1263-96, December.
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  6. Igor Livshits & James MacGee & Michèle Tertilt, 2007. "Accounting for the Rise in Consumer Bankruptcies," NBER Working Papers 13363, National Bureau of Economic Research, Inc.
  7. Joanna Stavins, 2000. "Credit card borrowing, delinquency, and personal bankruptcy," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 15-30.
  8. Thomas DeLeire & Leonard Lopoo & Kosali Simon, 2011. "Medicaid Expansions and Fertility in the United States," Demography, Springer, Springer, vol. 48(2), pages 725-747, May.
  9. Raj Chetty, 2009. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 1(1), pages 451-488, 05.
  10. Raj Chetty, 2005. "A General Formula for the Optimal Level of Social Insurance," NBER Working Papers 11386, National Bureau of Economic Research, Inc.
  11. Hynes, Richard M & Malani, Anup & Posner, Eric A, 2004. "The Political Economy of Property Exemption Laws," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 47(1), pages 19-43, April.
  12. Jonathan Gruber & Helen Levy, 2009. "The Evolution of Medical Spending Risk," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 25-48, Fall.
  13. Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 217-51, February.
  14. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 10(3), pages 379-402, December.
  15. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, American Economic Association, vol. 92(3), pages 706-718, June.
  16. Jon P. Nelson, 1999. "Consumer Bankruptcy And Chapter Choice: State Panel Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 17(4), pages 552-566, October.
  17. Jonathan Gruber & Kosali Simon, 2007. "Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?," NBER Working Papers 12858, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Elena Capatina, 2012. "Life Cycle Effects of Health Risk," Working Papers 201216, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  2. Amy Finkelstein & Sarah Taubman & Bill Wright & Mira Bernstein & Jonathan Gruber & Joseph P. Newhouse & Heidi Allen & Katherine Baicker & The Oregon Health Study Group, 2011. "The Oregon Health Insurance Experiment: Evidence from the First Year," NBER Working Papers 17190, National Bureau of Economic Research, Inc.
  3. Finkelstein, Amy, et al., 2011. "The Oregon Health Insurance Experiment: Evidence from the First Year," Working Paper Series rwp11-040, Harvard University, John F. Kennedy School of Government.
  4. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
  5. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark R. Cullen, 2012. "Moral Hazard in Health Insurance: How Important Is Forward Looking Behavior?," NBER Working Papers 17802, National Bureau of Economic Research, Inc.
  6. Moreno-Serra, R & Smith, PC, 2013. "Towards an index of health coverage," Working Papers, Imperial College, London, Imperial College Business School 10422, Imperial College, London, Imperial College Business School.
  7. Silvia H. Barcellos & Mireille Jacobson, 2014. "The Effects of Medicare on Medical Expenditure Risk and Financial Strain," NBER Working Papers 19954, National Bureau of Economic Research, Inc.
  8. Adkisson, Richard V. & Saucedo, Eduardo, 2012. "Emulation and state-by-state variations in bankruptcy rates," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 41(4), pages 400-407.
  9. Mazumder, Bhashkar & Miller, Sarah, 2014. "The Effects of the Massachusetts Health Reform on Financial Distress," Working Paper Series, Federal Reserve Bank of Chicago WP-2014-1, Federal Reserve Bank of Chicago.
  10. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark Cullen, 2012. "Moral hazard in health insurance: How important is forward looking behavior?," Discussion Papers, Stanford Institute for Economic Policy Research 11-007, Stanford Institute for Economic Policy Research.

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