The Affordable Care Act, better known as Obamacare, sparked and continues to spark debate. Its controversial passing and subsequent legal action triggered conversations between scholars and laymen alike. One fact about Obamacare is that it tracks a downward push of bankruptcy filings. The question becomes whether Obamacare is causal with respect to the slide in bankruptcy filings or if other factors pushed filings down.

The Numbers

The numbers show a distinct drop in bankruptcy filings since 2010, the year Obamacare was enacted. In 2010, the number of US bankruptcy filings reached 1,536,799. In 2016, there were 770,846. Coincidence?

The Experts

Some experts emphasize how effective Obamacare was. They say that medical bills triggered many bankruptcy filings prior to Obamacare. With the advent of Obamacare and reduced healthcare costs for those living on the edge, bankruptcy filings, according to many, dropped. In other words, Obamacare removed a major bankruptcy concern.

Others strongly disagree with this reasoning. They point to the improving economy and lesson learned from the Great Recession. The improving economy allowed people to earn more, especially with part-time/remote jobs. The Great Recession, they claim, informed people to be more careful with their money by diversifying their interests. Obamacare merely came at the same time and had no positive impact in respect to bankruptcy filings.

What is more, these experts claim, the Obamacare initiative made things worse. Bankruptcy filings may have been even less common had Obamacare not emerged. The notion that employers would be burdened by Obamacare, they claim, led to less hiring and less economic activity than otherwise would have been.  

On top of that, they claim, Obamacare squeezed those paying into employer plans. Obamacare triggered higher insurance premiums so employees paying into a plan had to contribute significantly more. As a result, those teetering on bankruptcy were thrust into bankruptcy as an indirect consequence of Obamacare.

BAPCPA

In addition to Obamacare, the Bankruptcy Abuse Prevention Creditor Protection Act of 2005, or BAPCPA, is another factor impacting bankruptcy filings. 2005 saw a massive surge in bankruptcy filings due to BAPCPA. New BAPCPA regulations made filing for bankruptcy more difficult. Therefore, in advance of BAPCPA taking effect, consumers rushed to file for bankruptcy to enjoy the pre-BAPCPA protections.

Among other things, BAPCPA made filing for bankruptcy more complex. This meant that many people who may have opted to file without using a lawyer were now required to use a lawyer. The extra costs may have been a deterrent for filing for bankruptcy protection. This may have contributed to some avoiding bankruptcy who may have otherwise filed.

Repeal

Since Donald Trump ascended the White House steps, there have been several attempts to repeal Obamacare. If repealed, will that lead to a surge in bankruptcy filings when people lose some or all medical benefits? This may answer the question as to whether Obamacare’s tracking of sliding bankruptcy filing numbers is just coincidence or causation.

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