Medical Bankruptcy Epidemic
Health Care Costs Trigger Half of All Personal Bankruptcies in U.S.
Oct 14, 2008
Over half of U.S bankruptcies result from out-of-pocket medical expenses, according to a study published on June 24, 2005 in the journal Health Affairs. The study, conducted by researchers at Harvard’s medical and law schools, is based on interviews with 1,771 individuals who filed for bankruptcy in 2001. Of these filers, 931 cited medical causes for their financial woes.
The results of the study indicate that an estimated 1.9-2.2 million Americans (the filers and their families) are affected annually by medical bankruptcy. In other words, every 30 seconds someone new is forced to contend with the double whammy of medical and financial catastrophe.
Middle-Class Medical Costs
On July 17, 2007, Professor Elizabeth Warren from the Harvard Law School testified before the House Committee on the Judiciary that rising health care costs are linked to increased bankruptcy rates among the middle-class. She states that since 2000, “an estimated five million families have filed for bankruptcy in the aftermath of serious medical problems. The current health care finance system is bankrupting hard-working, play-by-the-rules American families.”
Medical bankruptcy can result not only when the primary wage earner requires care, but also when a spouse, child, or elderly relative needs help. And bankruptcy can affect any family. In a February 9, 2005 Washington Post article, Warren writes that good educations and decent jobs are not safeguards against financial disaster. “Most of the medically bankrupt were middle-class homeowners who had been to college and had responsible jobs - until illness struck.”
Health Insurance No Guarantee
It’s not just the uninsured at risk for medical bankruptcy. The underinsured and fully insured are also vulnerable. Warren reports that three-quarters of the medically bankrupt had health insurance. As a result of high premiums, deductibles, and co-pays - as well as uncovered services and policy loopholes - out-of-pocket expenses become insurmountable. Even families with superior coverage find themselves filing for bankruptcy.
Families are more at risk when the primary wage earner is injured or becomes ill. The family suffers not only because of the increased medical costs, but also because the wage earner might no longer be able to work. As a result, the family loses both income and health coverage, either immediately or soon after. In certain circumstances, individuals might qualify for COBRA coverage, but the premiums can be quite expensive, much too expensive for someone with no job and mounting medical bills.
Congress Reacts to Bankruptcies
Families such as those in the Harvard study often take out second and third mortgages and run up stiff credit card debts. Not surprisingly, these cycles of debt and lost income lead many families to declare bankruptcy.
In 2005, Congress took notice of this trend and passed the Bankruptcy Abuse Prevention and Consumer Protection Act. The act, however, does little to protect consumers, but instead protects the credit card companies - by making it more difficult for individuals to declare bankruptcy. Ironically, members of Congress are covered by the Federal Employees Health Benefits Program and do not have to worry about being financially ruined by illness, which might explain how they could pass the act with so little regard to its impact on the sick and injured.
In this past year, however, at least some members of Congress appear to have had a change of heart. The Medical Bankruptcy Fairness Act of 2008, introduced in January, amends federal bankruptcy law to take into account medically distressed debtors. In February, the act was referred to the Subcommittee on Commercial and Administrative Law. And that’s where it still sits. Perhaps Congress is waiting for a few million more to lose everything before they step in.
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