Health-care reform in Massachusetts has helped to improve credit scores, reduce debt and even cut the number of personal bankruptcies by 20%, a new study finds. Taken as a test case, some experts say this could bode well for Obamacare’s impact on the financial health of American households.

There are many similarities between the health-care reform in Massachusetts in 2006 and President Obama’s 2010 Affordable Care Act. Both aim to achieve near-universal coverage by combining a mandate for individual insurance with insurance market reforms and a broad expansion of subsidized coverage for low- and middle-income households, according to “The Effects of the Massachusetts Health Reform on Financial Distress” by economists at the Federal Reserve of Chicago and the University of Notre Dame. “The context of our study is a major state-level reform that closely resembles the Affordable Care Act, making this analysis highly relevant for the ongoing debate surrounding the current federal program,” economists Bhashkar Mazumder and Sarah Miller concluded.

Shutterstock

The impact of reform on personal bankruptcy, delinquency and even credit scores was far more pronounced for those whose credit scores were lower before the reform. But those with higher credit scores before the reform—and better access to credit—experienced a larger relative decline in total debt, the authors found after analyzing credit report data that covered one-fifth of the Massachusetts population. “Ideally, full implementation of federal health care reform will lower the out-of-pocket costs of health care enough to cause a similar decline in medical debt, one of the leading causes, along with layoffs and divorce, of bankruptcy filings,” says Ed Mierzwinski, consumer program director for the non-profit U.S. Public Interest Research Group.

“This is the first study on health care reform to extend to measures of bankruptcy,” says Jonathan Gruber, a professor of economics at the Massachusetts Institute of Technology, who was also a principal designer of Massachusetts’ health-care overhaul and consulted on the Affordable Care Act. It confirms findings from a randomized expansion of Medicaid in Oregon, which showed enormous reductions in financial stress, Gruber says. (In that earlier study, “The Oregon Health Insurance Experiment,” published in 2012 in the “Quarterly Journal of Economics,” Medicaid recipients who gained health insurance coverage in 2008 through a lottery reported less financial strain and fewer medical bills than those who didn’t receive any coverage through the lottery.)

But others doubt that the Affordable Care Act will have the same effect. “Since Obamacare is extending Medicaid in 25 states, we would expect fewer medical bankruptcies amongst persons with incomes at or near the federal poverty line,” says Stephanie Woolhandler, professor of public health at Hunter College in New York. “For the non-Medicaid-eligible population, the effect of Obamacare on medical bankruptcies is likely to be minimal. Even insured people may end up with ruinous out-of-pocket costs if they experience a prolonged or expensive illness.” Woolhandler co-authored a 2011 study on bankruptcy in Massachusetts, which found that medical bankruptcies eased only slightly to 52.9% in 2009 from 59.3% in 2007, but it only surveyed 199 bankruptcy filings.

Americans also face some strong headwinds. Although it’s slowing, health-care inflation is still running at a faster pace than stagnant wage growth, says Steve Wojcik, vice president of public policy at the National Business Group on Health, a membership group for employers. “That’s a big threat to financial security,” he says. Obamacare will also reduce the total number of hours worked by about 1.5% to 2% from 2017 to 2024, according to data released this month from the Congressional Budget Office. “The Massachusetts study factored in unemployment rates as a variable to be controlled for rather than being affected by what they’re measuring,” Wojcik says. To be sure, the CBO report refers to labor supply and participation—meaning new job opportunities could also be created—not actual jobs.

Obamacare will certainly help those who in the past would have declared bankruptcy and could not afford health care, says Wendell Potter, a former vice president of corporate communications at health insurer Cigna. It puts limits on how much insurers can charge people because of their age, provides subsidies for those with low incomes and prevents insurers from denying coverage to people with pre-existing conditions. Additionally, people under age 26 are covered under their parents’ insurance. It won’t protect them entirely, however. “The sad reality is that even with the protections in the Massachusetts law and Obamacare, people who are in low paying jobs and high deductible plans are still at risk of bankruptcy if they get sick or injured,” Potter says.

Also see:

Not enough young people bought Obamcare

Obamacare fix brings new complications

10 things Obamacare won’t tell you