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How health care costs are linked to foreclosures

Sudden medical debt is a leading cause of bankruptcy, according to many studies

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The Senate’s planned vote on the Better Care Reconciliation Act this Thursday has turned this week into a frenzy of debate and deal-making among senators and Republican leaders. With the CBO score forthcoming—a review of the bill’s potential impact by the non-partisan Congressional Budget Office—every potential side effect of this far-reaching bill is being scrutinized as politicians weigh their decision to support legislation that will repeal and replace the Affordable Care Act, or Obamacare.

One key factor they may want to keep in mind is the connection between higher medical costs for individuals and the likelihood of bankruptcies and foreclosures.

Much of this year’s heated healthcare debate has focused on the successes and shortcomings of the Affordable Care Act (ACA). One of the lesser-discussed benefits of ACA has been a decline in sudden medical debt, which has a cascading effect on mortgage payments, foreclosures, and real estate.

According to a Money article from May, bankruptcy filings in the United States dropped by half between 2010 and 2016, falling from 1,536,799 to 770,846. According to experts, many factors contributed to the decline in personal bankruptcy during that period, including an improving economy and changes to bankruptcy laws in 2005. But “almost all agreed that expanded health coverage played a major role in the marked, recent decline.” While not every filing was directly connected to medical expenses, financial experts say that medical bills—often unexpected and large—are a large factor in U.S. bankruptcy filings.

The provisions of the ACA generally favored by the public—mandated coverage for pre-existing conditions, an end to annual and lifetime coverage caps, allowing young people to be covered by a family policy until age 26—all played a role in cutting sudden and potentially catastrophic medical debt.

A 2007 study of consumer bankruptcy filings published in the American Journal of Medicine found that 62 percent of those who filed for bankruptcy did so due to medical debt, and most with medical debt were middle-class homeowners (and three of four had health insurance). The study discovered that many mortgaged their home to pay down medical debt. A 2008 Harvard Study, Get Sick, Get Out: The Medical Causes of Home Mortgage Foreclosures, found that half of all foreclosures had a medical cause, and that “medical crises put 1.5 million Americans in jeopardy of losing their homes last year.” In addition, a 2014 study by bankruptcy attorney Daniel Austin, a professor at the Northeastern University School of Law, found that medical debt is the single largest factor in personal bankruptcy.

The American housing market has, in many ways, recovered from where it was in the depths of the Great Recession, according to the latest annual report from the Harvard Joint Center on Housing Studies. While there isn’t a direct, one-to-one connection between passing repeal-and-replace and increased bankruptcies and foreclosures—and many experts have cautioned against making too broad a conclusion about the impact of the ACA and medical debt-induced bankruptcies—it seems fair to suggest that less access to insurance and care has the potential to increase the type of sudden medical debt associated with bankruptcies and foreclosures.