The Impact of Medicare on Personal Bankruptcy

Medicare aimed to improve access and reduce the out-of-pocket costs of medical care for individuals over the age of 65, many of whom had low incomes, high medical expenses, and no health insurance. On July 1, 1966, all 19 million Americans aged 65 years and older became eligible for Medicare. Within a year after the rapid implementation of Medicare, the personal bankruptcy rate began a gradual decline that lasted until 1974. The objective of this dissertation is to determine the extent to which the implementation of Medicare contributed to the decline in the bankruptcy rate. I use publicly-available aggregate data to determine whether the implementation of Medicare is associated with a structural break in state bankruptcy rates, controlling for other determinants of the bankruptcy rate such as state demographics and state legal variables. I find that, with a three-year lag, an increase in elderly enrollment in Medicare Part A is associated with a decrease in personal bankruptcy rates; however, this decrease is smaller when Medicare is simultaneously increasing access to care. The implementation of Medicare is expected to decrease the bankruptcy rate by decreasing the fraction of the population with medical debt, but this channel cannot be investigated using aggregate data. I therefore augment the publicly-available aggregate data with new micro-data collected from original bankruptcy court case files from the 1960s and 1970s, which I link to other documents to determine age of the petitioner. The new data include detailed information about petitioners and their debts. I use difference-in-difference regressions to measure the effect of the implementation of Medicare on medical debt. I find that the implementation is associated with a decrease in the prevalence of medical debt at filing, but Medicare eligibility is associated with an increase in the size of medical debt for these petitioners. Quantile regression results show that filers after the implementation were younger and had higher incomes than filers before the implementation.