The Right Coast

February 04, 2005
Medical Bills as a Cause of Bankruptcy
By Gail Heriot

“HALF OF BANKRUPTCY DUE TO MEDICAL BILLS–US STUDY” At least so said the Reuters headline in yesterday’s story. And so indicated similar stories in newspapers across the country. Soon it will be repeated as gospel on Capitol Hill and by the chattering classes everywhere. Understandably, middle class Americans have started to feel a little queasy inside about their health and, more particularly, their health insurance.

The fundamental problem is that it isn’t true. Despite what the study's authors have encouraged us to believe, the study isn't really about medical bills. It's about bankruptcies that someone, somehow has determined are medically related. It finds that 54.5% of all bankruptcies have “a medical cause” and that 46.2% of all bankruptcies have “a major medical cause.” It does not find, however, that an injury or illness was the primary cause in half of all bankruptcies. And, perhaps more importantly, it does not find that medical bills were a significant factor in those bankruptcies.

Don't get me wrong. Some bankruptcies are caused by catastrophic medical debt. But they aren’t half of all bankruptcies, and the only way to make it look like they are is to jimmy the figures. For example, the study classifies “uncontrolled gambling,” “drug addiction,” “alcohol addiction,” and the “birth or adoption” of a child as “a medical cause,” regardless of whether medical bills are involved. Yes, there may be situations in which a researcher might legitimately want to classify those conditions as “medical,” but an attempt to prove that Americans are going bankrupt as a result of crushing medical bills is not one of them. A father who has gambled away his family’s mortgage payment is not likely the victim of crushing medical debt. Similarly, the couple who find they can no longer afford their previous life-style now that Mom or Dad has to stay home with the baby will usually find the obstetrician’s bill the least of their problems. Babies are a financial hardship even when hospitals give them away free.

Maybe that's why only 28.3% of the surveyed debtors themselves agreed with the authors that their bankruptcy was caused in a substantial manner by "illness or injury;" the rest presumably put the blame elsewhere.

Buried in the study is the fact that only 27% of the surveyed debtors had unreimbursed medical expenses exceeding $1000 over the course of the two years prior to their bankruptcy. Presumably 73%–the vast majority-- had medical expenses during that two-year period of $1000 or less. Had that figure been recited up front, it would have been obvious that the authors had to massage the data pretty hard to support the conclusion that half of bankruptcies are somehow driven by medical costs.

Nobody likes to have to pay $1000 in medical expenses even when they get two years to do it in, but for most Americans it is not catastrophic. They’ll get by. And they won’t need the protection of the bankruptcy courts to do so. Something else is going on in the overwhelming majority of these bankruptcies, whether it's gambling debt, drug or alcohol addiction, child care expenses, unemployment, or simply the wanton use of credit cards.

What would be far more significant for the public to know is how common the cases of truly crushing medical debt-–in the range of 10,000 in single year or more--actually are. That's something the study is careful not to tell us that, despite the fact that the raw data behind the study would appear to be sufficient to make such computations possible. Instead, at every turn, the authors choose to present the data in ways that mislead the reader into believing that crushing medical debt is the leading cause of bankruptcy. For example, at one point we are told that the mean out-of-pocket medical expenditure for this kind of bankruptcy is $11,854. But this is not the average for the 54.5% of bankruptcies that the study holds to have "a medical cause;" it's the average for the much smaller group (28.3%) in which the debtor agreed that illness and injury played a substantial role. And the $11,854 figure is not for the year or two prior to the bankruptcy, but for the entire period of the illness, which may be many years. Finally, and most importantly, it is a mean and not a median. Just one truly catastrophic illness costing a total of $6 million over the course of any length of time would be enough to put the group's mean at above $12,000, even if nobody else in the sample ever spent a dime on medical bills. It's hard to see why a respectable scholar would use the mean instead of the median if the point of the study is to show that a large proportion of bankruptcies are caused by medical bills.

At least one of the authors–Dr. Steffie Woolhandler, a Cambridge Hospital internist, makes it clear that she does indeed have an agenda. She identifies herself as an advocate of universal health coverage who believes that her study supports demands for health care reform. “Covering the uninsured isn’t enough. We must also upgrade and guarantee continuous coverage for those who have insurance,” she said in a statement. She went on to condemn employers and politicians who advocate what she called “stripped-down plans, so riddled with co-payments, deductibles and exclusions that serious illness leads straight to bankruptcy.”

Well, she and the Robert Wood Johnson Foundation, which funded the project, haven’t proven it with this study. And since previous estimates have indicated that the number of bankruptcies caused by serious medical illness has been around 8% in the past, I remain skeptical.