NBER:
http://papers.nber.org/papers/w18105?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Full paper (highly technical):
http://www.stanford.edu/~nmahoney/Research/Mahoney_Bankruptcy.pdf


In the first part of the paper, I argue that the fact that most medical care is provided on credit coupled with the fact that this debt can be discharged for seizable assets in bankruptcy provides households with implicit high-deducible health insurance.

I next evaluated the quantitative importance of this mechanism. Exploiting cross-state and within-state variation in asset exemption law, I show that uninsured households with greater seizable assets 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 coverage. Health insurance is wealth insurance, to a certain degree, and is less valuable to those with fewer assets.

The final part of the paper examined ways in which the implicit insurance from bankruptcy might inform the design of health insurance policy. Because households do not pay for bankruptcy insurance, too many households choose to be uninsured on the margin. Using a utility-based, microsimulation model of insurance choice, I estimate that the optimal Pigovian* penalties are similar on average to the penalties under the ACA.

* A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. A Pigovian tax equal to the negative externality is thought to correct the market outcome back to efficiency. In the presence of positive externalities, i.e., public benefits from a market activity, those who receive the benefit do not pay for it and the market may under-supply the product. Similar logic suggests the creation of Pigovian subsidies to make the users pay for the extra benefit and spur more production. (Wikipedia, accessed 5/29/12)