Journal of Regulatory Economics

, Volume 50, Issue 2, pp 233–250 | Cite as

Health insurance mandates in a model with consumer bankruptcy

  • Gilad Sorek
  • David Benjamin
Original Article


We study insurance take-up choices by consumers who face medical expense risk and who know they can default on medical bills by filing for bankruptcy. For a given bankruptcy system, we explore the total and distributional welfare effects of health insurance mandates compared with the pre-mandate market equilibrium. We consider different combinations of premium subsidies and out-of-insurance penalties, confining attention to budget-neutral policies. We show that when insurance mandates are enforced only through penalties, the efficient take-up level may be incomplete. However, if mandates are also supported with premium subsidies, full insurance coverage is efficient and can also be Pareto improving. Such policies are consistent with the incentive structure for insurance take-up set in the ACA. Pareto improvement is possible because the legal requirement that medical providers dispense acute care on credit, together with the bankruptcy option, yields effective subsidies for medical care utilized by the uninsured. Those subsidy funds, however, can serve the initially uninsured better when they are given as ex ante subsidies on insurance premiums.


Health insurance mandates Consumer bankruptcy Welfare 

JEL Classification

I-13 I-18 K-35 


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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of EconomicsAuburn UniversityAuburnUSA
  2. 2.Department of EconomicsUniversity at Buffalo, State University of New YorkBuffaloUSA

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