Are hospital bills hazardous to your financial health?

This paper studies the effect of hospital prices on the financial health of individuals. I construct a novel zip-level measure of prices hospitals charge for their services using detailed healthcare micro-data and state hospital cost reports obtained via a series of Freedom of Information Act (FOIA) requests. Using an instrumental variable strategy that captures insurers' market power, the findings reveal a causal link between higher hospital prices and adverse financial outcomes, including a rise in personal bankruptcy filings, reduced demand and increased application denials for home mortgages, and increased use of credit cards and home equity line of credit. I provide evidence that these results are not driven by declining income, deteriorating health, or over-utilization of health services in the local area. I show that such price increases disproportionately impact areas with individuals particularly exposed to healthcare prices, such as areas with a higher percentage of uninsured individuals, lower Medicare/Medicaid enrollment, and areas with a higher population concentration of people of color. Furthermore, I show that home equity mitigates some of these effects. The results are robust to alternative specifications and the use of an alternative instrument that exploits price changes induced by hospital peer effects in a geographic area.