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Medical Bills Prompt More Than 60% of U.S. Bankruptcies
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(Getty Images)By Theresa Tamkins
THURSDAY, June 4, 2009 (Health.com) — This year, an estimated 1.5
million Americans will declare bankruptcy. Many people may chalk up
that misfortune to overspending or a lavish lifestyle, but a new study
suggests that more than 60% of people who go bankrupt are actually
capsized by medical bills.
Bankruptcies due to medical bills increased by nearly 50% in a six-
year period, from 46% in 2001 to 62% in 2007, and most of those who
filed for bankruptcy were middle-class, well-educated homeowners,
according to a report that will be published in the August issue of
The American Journal of Medicine.
“Unless you’re a Warren Buffett or Bill Gates, you’re one illness away
from financial ruin in this country,” says lead author Steffie
Woolhandler, MD, of the Harvard Medical School, in Cambridge, Mass.
“If an illness is long enough and expensive enough, private insurance
offers very little protection against medical bankruptcy, and that’s
the major finding in our study.”
Dr. Woolhandler and her colleagues surveyed a random sample of 2,314
people who filed for bankruptcy in early 2007, looked at their court
records, and then interviewed more than 1,000 of them.
They concluded that 62.1% of the bankruptcies were medically related
because the individuals either had more than $5,000 (or 10% of their
pretax income) in medical bills, mortgaged their home to pay for
medical bills, or lost significant income due to an illness. On
average, medically bankrupt families had $17,943 in out-of-pocket
expenses, including $26,971 for those who lacked insurance and $17,749
who had insurance at some point.
Overall, three-quarters of the people with a medically related
bankruptcy had health insurance, they say.
“That was actually the predominant problem in patients in our study—
78% of them had health insurance, but many of them were bankrupted
anyway because there were gaps in their coverage like co-payments and
deductibles and uncovered services,” says Dr. Woolhandler. “Other
people had private insurance but got so sick that they lost their job
and lost their insurance.”
However, Peter Cunningham, PhD, a senior fellow at the Center for
Studying Health System Change, a nonpartisan policy research
organization in Washington, D.C., isn’t completely convinced. He says
it’s often hard to tell in which cases medical bills add to the bleak
financial picture without being directly responsible for the
bankruptcies.
“I’m not sure that it is correct to say that medical problems were the
direct cause of all of these bankruptcies,” he says. “In most of these
cases, it’s going to be medical expenses and other things, other debt
that is accumulating.”
Either way, he agrees that medical bills are an increasing problem for
many people.
“I think medical bills are something that a lot of families are having
a lot of difficulty with and whether it’s the direct cause of
bankruptcy or whether it helps to push them over the edge because they
already were in a precarious financial situation, it’s a big concern
and hopefully that’s what medical reform will try to address,” he
says.
The study may overestimate the number of bankruptcies caused by
medical bills yet underestimate the financial burden of health care on
American families, because most people struggle along but don’t end up
declaring bankruptcy, according to Cunningham.
“Bankruptcy is the most extreme or final step for people who are
having problems paying medical bills,” he says. “Medical bills and
medical costs are an issue that can very easily and in pretty short
order overwhelm a lot families who are on otherwise solid financial
ground, including those with private insurance.”
His group’s research found that medical bills unduly stress 1 in 5
families.
Either way, the high cost of health care is a problem that’s probably
getting worse for people in the United States, particularly since the
economic picture became grimmer after the study was conducted.
“The recession didn’t happen until a year after our study,” says Dr.
Woolhandler. “We’re quite sure that the problem of bankruptcy overall
is worse, the numbers have been soaring, and the number this year is
expected to be higher than it was before Congress tightened bankruptcy
eligibility in 2005.”
In 2005, bankruptcies peaked at two million filings.