Auburn University Department of Economics Working Paper Series Health Insurance Mandates in a Model with Consumer Bankruptcy Health Insurance Mandates in a Model with Consumer Bankruptcy

We study insurance take-up choices by consumers who face medical-expense and income risks, knowing they can default on medical bills by filing bankruptcy. For a given bankruptcy system we explore total and distributional welfare effects of health insurance mandates, compared with pre-mandates market equilibrium. We consider different combinations of premium-subsides and out-of-insurance penalties, confining attention to budgetary neutral policies. We show that when insurance mandates are enforced through penalties only, the effi cient take-up level may be incomplete. However, if mandates are supported also with premium subsidies full insurance coverage is effi cient and can be also Pareto improving. Such policies are consistent with the incentives structure set in the ACA for insurance take-up. JEL Classification: : I-13, I-18, K-35 Key-words: Consumer Bankruptcy, Health Insurance Mandates, Welfare ∗We have benefited from comments by Randy Beard and Melissa Oney, and participants at the 2014 Southern Economics Association conference. †Dpeartment of Economics, Auburn University, Auburn Alabama. ‡Department of Economics University at Buffalo, State University of New-York, Buffalo NY.