Financial Spillovers from Hospital Billing Regulations: Evidence from California

There is a critical link between the generosity of health insurance coverage and household finances. It has become increasingly important to understand this link with the growth of high-deductible health plans, the changing policy landscape, and the introduction of other factors that may change the generosity of health insurance coverage. While there are several studies that investigate the relationship between health insurance and the associated financial outcomes (e.g. Dobkin et al. (2018), Hu et al. (2018), Gross and Notowidigdo (2011)), less is known about how alternative patient protections and policies, in the form of hospital billing regulations, may help shield consumers from unexpected, expensive medical events. To better understand how policy can mitigate the potentially harmful financial consequences stemming from the use of health care, we study a reform designed to protect consumers from high medical bills: The California Fair Pricing Law. This law limits the amount that uninsured patients face for a hospital visit. Limits are set to the rate paid by government programs, such as Medicare.

Using an event study approach and a large anonymized panel dataset of consumer credit information, we examine the effect of this regulation on the incidence and amount of medical debt sent to third-party debt collectors. We hypothesize that if this law is effective in protecting the financial health of a consumer, we may be able to observe this through a decrease in medical debt of this type. We then estimate the effect of the law on several financial outcomes for patients who are likely to be exposed to the policy. In doing this, we learn about the type of reforms that can affect the link between health care utilization and financial outcomes for the uninsured.