Bankruptcy as Implicit Health Insurance

82 Pages Posted: 23 Sep 2013 Last revised: 6 Jan 2015

See all articles by Neale Mahoney

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 17, 2014


This paper examines the implicit health insurance 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.

Keywords: H51, I13, K35

JEL Classification: Health insurance, bankruptcy, Affordable Care Act (ACA), social insurance

Suggested Citation

Mahoney, Neale, Bankruptcy as Implicit Health Insurance (November 17, 2014). Available at SSRN: or

Neale Mahoney (Contact Author)

University of Chicago Booth School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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