Posted on February 2, 2005

Bankruptcy Study(Kaiser Daily Health Policy Report)


Kaiser Daily Health Policy Report
Wednesday, February 02, 2005
Coverage & Access

Medical Conditions, Resulting Financial Issues Contributed to Half of Bankruptcies in 2001, Study Says

About half of bankruptcies filed in 2001 were because of medical bills, according to a study published Wednesday on the Health Affairs Web site, the Chicago Tribune reports (Rubin, Chicago Tribune, 2/2). For the study, researchers from Harvard Medical School and Harvard Law School surveyed 1,771 U.S. residents who filed for bankruptcy in 2001 and interviewed 931 of them (Abelson, New York Times, 2/2). People interviewed had cases involving injury or illness, unpaid medical bills of more than $1,000 in the two years prior to filing for bankruptcy, loss of two weeks of work because of illness or injury or mortgaging of a home to pay medical bills, the Los Angeles Times reports (Dickerson, Los Angeles Times, 2/2). According to the study, 46.2% of people reporting bankruptcy in 2001 cited illness and medical bills as the cause. The rate rose to 54.5% when births, deaths and gambling addictions were considered as factors, the AP/San Jose Mercury News reports (Jewell, AP/San Jose Mercury News, 2/2). The number of bankruptcies filed in the United States tripled between 1980 and 2001, to nearly 1.5 million couples and individuals. The number of medical-related bankruptcies increased twenty-threefold during that period, the study says (Los Angeles Times, 2/2).

More Findings

According to Steffie Woolhandler, one of the study authors and a doctor at Cambridge Hospital, 76% of people who had a medical-related bankruptcy had health insurance when they first became ill (Kowalczyk, Boston Globe, 2/2). According to the study, 38% of those who filed for bankruptcy lost their health coverage at least temporarily by the time they had declared bankruptcy (AP/San Jose Mercury News, 2/2). Most of those who filed for bankruptcy because of medical costs were middle-income homeowners, the study indicates (Los Angeles Times, 2/2). For people filing bankruptcy, out-of-pocket medical costs averaged $13,460 for those who had health insurance, compared with an average of $10,893 for the uninsured, the study says. The highest costs — $18,005 on average — were incurred by people who had private health coverage at the beginning of their illness but later lost it, according to the study. For patients with cancer, average out-of-pocket costs were $35,878, the study finds (Kerr, Long Island Newsday, 2/2). The study also says that employer-sponsored health insurance does not seem to shield families from high medical costs because an illness can lead to job loss and loss of health coverage, the Los Angeles Times reports. In addition, people who cited medical bills as a cause for filing bankruptcy were more likely than others to have experienced a gap in health coverage because of costs or because they switched to a new plan and then lost coverage because of pre-existing medical conditions, the study says. In addition, about 33% of those who filed for bankruptcy because of medical costs said they still have difficulty paying bills, such as mortgages, utilities and rent (Los Angeles Times, 2/2).

Researchers’ Reaction

Elizabeth Warren, a Harvard law professor and one of the study’s authors, said, “It doesn’t take a medical catastrophe to create a financial catastrophe” (New York Times, 2/2). Woolhandler said, “A larger share of American workers are going to have insurance that’s like a paper umbrella. It looks good, and it might even protect you in a sprinkle, but it melts away in a downpour” (Rackl, Chicago Sun-Times, 2/2). David Himmelstein, another author and Harvard Medical School professor, said, “Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who just happened to get sick. Health insurance offered little protection” (Rapaport, Sacramento Bee, 2/2). Warren said, “These are hard-working, ‘play-by-the-rules’ people who have health insurance and have discovered that they were just one bad diagnosis away from financial catastrophe. I think that’s the real heart of the story. This is about people who thought they were all safe” (Los Angeles Times, 2/2). Woolhandler said, “We need to rethink health reform. Covering the uninsured is not enough. We also must upgrade and guarantee continuous coverage for those who have insurance” (AP/San Jose Mercury News, 2/2). The Tribune reports that Himmelstein and Woolhandler, who are married, are co-founders of Physicians for a National Health Program, a group that advocates a national health insurance system (Chicago Tribune, 2/2).

Other Reaction

Some health policy analysts said they believe the findings highlight the “limitations” of the employer-based health insurance system, according to the New York Times. For instance, as employers shift more health care costs to workers, increasing copayments and deductibles could exacerbate the problem of medical-related bankruptcies, the Times reports. Joseph Antos, a health policy researcher with the American Enterprise Institute, said, “You can lose [health insurance] because it’s tied to employment” (New York Times, 2/2). Attorney Andrew Thaler, a bankruptcy trustee in New York, said that “a lot of people are having to file bankruptcy because of medical reasons. Lots of times people with medical debts will have other debts as well” (Long Island Newsday, 2/2). Greg Scandlen, director of the Galen Institute, said, “I don’t doubt there are people who lose their jobs due to a medical problem and hence lose their income and insurance. But this ‘study’ tells us absolutely nothing about those people because it is trying so hard to exaggerate the problem” (Chicago Tribune, 2/2).
The study is available online.