Health Care Bankruptcies

70% of bankruptcies in the U.S. are from health care. This, like "All Gaul is divided into three parts," is carved in stone. But is it?

​

The Kaiser Family Foundation reports that in 2016, half of all insurance policy-holders faced a deductible, the amount people need to pay on their own before their insurance kicks in, of at least $1,000. For people who buy their insurance via one of the Affordable Care Act’s exchanges, that figure will be higher still: Almost 90 percent have deductibles of $1,300 for an individual or $2,600 for a family.

The most recent Report on the Economic Well-Being of U.S. Households, an annual survey conducted by the Federal Reserve Board, found that 44 percent of adult Americans claim they could not come up with $400 in an emergency without turning to credit cards, family and friends, or selling off possessions.
​
So taking care of yourself is hard. And expensive.

Spending is obviously most pressing for households with the highest medical bills, the 5 percent of Americans who make up 50 percent of the country’s healthcare costs. Medicare, Medicaid, and private insurers will spend $40,375 on average per patient for someone in this group. Their out-of-pocket spending will be much less: on average, $2,582.90. This isn’t, in the scale of things, a lot of money—but given Americans’ straightened personal finances, it is more than many can easily access.  

​

A famous study—co-authored by Elizabeth Warren—found that medical illness was the most common reason for ultimately leading someone to petition the courts for relief from their financial obligations.

But even that study was not clear. Another study argued that unnecessary spending prior to the medical crisis was the main factor.

 

As it turns out, determining what counts as a medical expense is difficult. It’s not simply doctor bills. In addition to the not-covered deductibles, there is transportation to and from medical appointments, parking fees at many hospitals, and often childcare expenses while parents are in treatment or at appointments. Time for cooking will be limited, so take-out bills can pile up, too.  

And families that experience an illness are often  lose income as a result of their illness, often cutting back on work hours or leaving work altogether, either voluntarily or not. Often they are simply too sick to work.
 
Overall, three-quarters of the people with a medically-related bankruptcy had health insurance, according to Woolhandler and her colleagues who 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. .
"That was actually the predominant problem in patients in our study -- 78 percent 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 Woolhandler. "Other people had private insurance but got so sick that they lost their job and lost their insurance."

Economists Carlos Dobkin of the University of California, Santa Cruz, Matthew Notowidigdo of Northwestern University, and Amy Finklestein and Raymond Kluender of MIT, recently published an article on the impact of health costs on patients in The New England Journal of Medicine.
These authors claim those previous studies suffered from a “basic statistical fallacy.” When corrected, medical expenses cause many fewer bankruptcies than those previous claims.
​
Rather than looking at the share of bankruptcies that involve medical bills, the new paper looks at the effect of a hospitalization on the likelihood of declaring bankruptcy. The authors analyze a sample of people aged 25 to 64 who were admitted to the hospital in California between 2003 and 2007 for the first time in the past three years, and tracks their information through credit reports to see the share that filed for bankruptcy.
Using this method, they find that hospitalization increases the rate of bankruptcies, but estimate that hospitalizations only cause four percent of bankruptcies among nonelderly adults. 4%. As they note, this estimate “is an order of magnitude smaller than the previous estimates” such as the 62 percent figure cited above. Even among the uninsured, hospitalizations were only responsible for six percent of bankruptcies.

62%. 4%. 6%. These are very different results. And probably result from very different statistical abilities.

Or very different motives.