Medical bankruptcies happen less frequently than you think

Elizabeth Warren describes medical bills as “the leading cause of personal bankruptcy” in the United States. She bases that opinion in part on her own research, in which she and her collaborators surveyed people who had experienced personal bankruptcy, asked them whether they’d experienced health-related financial distress, and concluded that 60 percent of all bankruptcies in the U.S. result from illness or injury.

An article in the New England Journal of Medicine this spring convincingly argued that Warren’s estimates were seriously exaggerated due to faulty research methods. I’ll briefly summarize that critique. But more importantly, I’ll explain why even revised bankruptcy estimates still overstate the contribution of health care costs to American bankruptcy rates.

Here is a quick review of the issue.

1. Warren’s team surveyed people who had declared bankruptcy, asked them if they’d experienced health-related financial distress, and then blamed bankruptcy on health problems for anyone who reported such distress.

2. That’s a problem because it assumes that, lacking such health-related financial distress, none of these people would have become bankrupt. But you could have asked all of these people about housing-related financial distress, and you’d probably find at least 60 percent reporting such distress, too. Would that mean housing costs were responsible for their bankruptcies? You could ask about other sources of financial distress too – car payments, food costs, etc. – and you’d be left wondering which of these expenses caused them to experience personal bankruptcy. But of course, for most people, it is the combination of expenses that puts them into bankruptcy.

3. A better methodology is to follow people hospitalized with a new illness or injury, and see how many end up in bankruptcy. In the New England Journal of Medicine study, researchers looked at people after they had been hospitalized for the first time in at least three years. They found that the rate of personal bankruptcy rose after hospitalization, causing them to conclude that 4 percent – not 60 percent – of bankruptcies are related to serious illness or injury.

Now 4 percent is still a big number, and the figure shows a steep and troubling rise in bankruptcy after hospitalization. But there is another thing we need to keep in mind.

4. Most people who become bankrupt after illness or injury are not necessarily bankrupt because of health care costs. Many people become bankrupt because they have lost income – they are too sick to work.

5. Reducing people’s exposure to health care costs won’t necessarily have a huge impact on bankruptcy rates.

I am passionate about reducing people’s exposure to unnecessary health care expenses. But I don’t believe more robust insurance coverage is a panacea for personal bankruptcy.

We need more robust health care coverage for people with serious illnesses or injuries. But even more importantly, we need to pursue policies that get Americans to save more money and that address the kind of income inequality that puts so many hardworking people one major life event away from bankruptcy.

Peter Ubel is a physician and behavioral scientist who blogs at his self-titled site, Peter Ubel and can be reached on Twitter @PeterUbel. He is the author of Critical Decisions: How You and Your Doctor Can Make the Right Medical Choices Together. This article originally appeared in Forbes.

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