A new study suggests that over 60 per cent of all bankruptcies in the US are down to medical reasons, with most victims being health-insured middle class people of good education.

The study was the work of researchers from Cambridge Hospital (a Harvard Medical School teaching affiliate), Harvard Law School and Ohio University and is to appear in the August 2009 issue of the American Journal of Medicine.

First author Dr David U. Himmelstein, who practices and teaches medicine at Cambridge Hospital, said:

“The US health care financing system is broken, and not only for the poor and uninsured.”

“Middle class families frequently collapse under the strain of a health care system that treats physical wounds, but often inflicts fiscal ones,” he added.

Analysing data of a first-ever national random-sample survey of bankruptcy filers, the researchers found that in 2007, over 60 per cent of bankruptcies filed in the US were driven by medical incidents, with an American family filing for bankruptcy following a bout of illness every 90 seconds. 75 per cent of them had health insurance.

The authors suggest that medical reasons lie behind a large and increasing proportion of bankruptcies. They found that bankruptcies caused by medical problems went up by 50 per cent between 2001 and 2007.

The study was a follow up of an earlier one that was done in 5 states in 2001, and found that medical problems were a main contributor to at least 46.2 per cent of all bankruptcies. This time the researchers cast their net wider and took a nationwide random sample of 2,314 bankruptcy filers in 2007. They got hold of the court records and interviewed 1,032 of the filers.

Using the same definition as they used in 2001, they classed a 2007 case as “medical” depending on the debtor’s reason for filing for bankruptcy, how much income they lost due to illness and the size of their medical debts.

Comparing the two surveys they found that the share of bankruptcies due to medical problems went up by 49.6 per cent between 2001 and 2007 and the chances that a bankruptcy case was due to medical reasons had more than doubled in that time (it went up by 2.38 times).

As to the reason, or the final straw, that clinched the decision to file for bankruptcy, for 92 per cent of the cases classed as “medical”, high medical bills was a direct contributor, said the researchers.

The analysis showed that:

  • Many families with continuous coverage found they were under-insured, and owing thousands of dollars in out-of-pocket costs.
  • Out of pocket medical costs averaged 17,943 dollars for all the medically bankrupt families.
  • Uninsured patients owed an average of 26,971 dollars of out of pocket costs.
  • Those with private insurance at the outset owed 17,749 dollars of out of pocket costs.
  • Those who had private insurance at the start and then lost it, the average owed in out of pocket costs was 22,568 dollars.
  • Patients with Medicaid (government insurance for low income families) owed 14,633 dollars, those with Medicare (government insurance for seniors) owed 12,021, and those with VA/military coverage owed 6,545 dollars on average.

It seems that financially, once illness sets in, for many of these families, the means to pay for medical care spirals downwards while medical costs spiral upwards.

Since nearly all insurance depends on having a job, getting ill triggers loss of coverage, said the researchers.

The researchers found that income loss due to illness was common, and it nearly always occurred with high medical costs.

Across the US, 25 per cent of employers cancel coverage as soon as an employee has a disabling illness while another 25 per cent cancel it within 12 months.

Dr James E. Dalen, of the University of Arizona College of Medicine in Tucson, said the study was further evidence that the US healthcare system was “broken” and:

“Medical bankruptcy is almost a unique American phenomenon, which does not occur in countries that have national health insurance.”

“These long-time advocates of a single payer system give us another compelling reason to work toward this goal as a nation,” he added.

“Medical Bankruptcy in the United States, 2007: Results of a National Study.”
David U. Himmelstein, Deborah Thorne, Elizabeth Warren, and Steffie Woolhandler.
American Journal of Medicine, Volume 122, Issue 8 (August 2009) published by Elsevier.

Source: Elsevier Health Sciences.

Written by: Catharine Paddock, PhD