CFCE Blog

Widespread Medical Bankruptcies: Another Myth

By Loren Kaye
Posted 7/27/2007

Governor Schwarzenegger has justified his universal coverage initiative, and in particular his proposal that health plans must issue coverage for any and all, by referring to studies showing the prevalence of medical care debt in personal bankruptcies.

Citing a Harvard Medical School study, the Governor claims, “About half of all personal bankruptcies in the United States are due to medical bills.” The Governor’s materials deliver a breathless quote by the study’s author: “We’re all one serious illness away from bankruptcy.”

These statistics are uncritically recycled by the media and accepted in the political debate, but the study has come under fire from serious academics.

Todd Zywicki and Gail Heriot are law professors who have documented the shortcomings of the Harvard study.  They bluntly call the 2005 study “one of the most misleading pieces of research ever placed before Congress – no small dishonor.”  Several key points from a recent published article:

The authors also classified bankruptcies as having a "major medical cause" if the debtors had more than $1,000 in accumulated, out-of-pocket medical expenses (uncovered by insurance) over the course of the two years prior to the bankruptcy, even if the debtors did not cite illness or injury as among the reasons for their bankruptcy.

Nobody likes to have to pay $1,000 in medical expenses, even if it is spread out over two years. But for most Americans (particularly those with enough at stake to declare bankruptcy), it is not catastrophic.

To put this figure in perspective, in 2001 (the year that was the basis for the study's sample) average per capita out-of-pocket medical expenses were $683 — meaning during that two-year period the average American spent about 30 percent more than their figure on uncovered medical expenses.

(snip)

What do the real data show? Numerous studies have found the number of bankruptcies caused by medical debt to be dramatically lower than Mr. Himmelstein and Miss Warren report — down in the single digits.

Among the most recent is a study of 5,203 bankruptcy filers (about threefold the number examined by Mr. Himmelstein and Miss Warren) by the Executive Office of the United States Trustee. It found 54 percent of filers listed no medical debt at all and that medical debt accounted for about 5½ percent of the total general unsecured debt. About 90.1 percent of filers reported no medical debt or medical debt of less than $5,000. Of the 46 percent who reported medical debt, 78 percent reported medical debt below $5,000, with an average of only $1,212 within that group — hardly enough to send the average family into bankruptcy. Overall, 1 percent of the cases accounted for a total of 36½ percent of medical debt, and less than 10 percent of all cases represent 80 percent of all medical debt.

Read the whole thing.

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