The Right Coast

March 16, 2005
More on Bankruptcy
By Gail Heriot

Uh oh! My analysis has been called "spectacularly stupid" by a nice man named Thomas Nephew. Gosh, I suppose I’ve been called worse ... even by my own grandmother once or twice. But allow me to respond:

Nephew is evidently hot and bothered on two grounds:

(1) First he is upset that my National Review Online essay begins with a discussion of an inaccurate newspaper headline:

"Half of Bankruptcy Due to Medical Bills–US Study." At least so said the
Reuters headline in last week’s story. And similar news stories across the country agreed. 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 about their health and about the adequacy of their health insurance.

The fundamental problem is that it isn’t true. Despite what the authors have encouraged us to believe, the Harvard study, entitled "Illness and Injuries as Contributors to Bankruptcy," isn’t really about medical bills, crushing or otherwise. It’s about bankruptcies that can–at least if you’re willing to stretch things a bit–be classified as medically related."
Nephew doesn’t disagree that the headline is inaccurate. But he evidently thinks that I shouldn’t have brought up the error. He points out that the study’s title is not itself misleading in this regard.

I have three responses to that.

First it would be worthwhile in itself to point out that the media got it wrong, even if the authors of the study had not been at fault. That’s the version the public and most public policymakers read and react to. I might add here that it wasn’t just Reuters that got it wrong. The Boston Globe, the Cleveland Plain Dealer, the Associated Press, the Chicago Tribune, MSNBC, CNN and lots of others ran headlines claiming that the half of all bankruptcies were found to be caused by medical bills. All were false.

Second, in the media’s defense, those headlines were not manufactured from whole cloth. A press release (available on Lexis/Nexis) that accompanied the study, issued over U.S. Newswire by Physicians for a National Health Program, an organization co-founded by two of the authors, also carried an erroneous headline, "Harvard Study: Half of U.S. Bankruptcies Caused by Medical Bills." (According to its web site, PNHP is an organization that advocates a single-payer system as "the only solution to solving the United States’ many health care problems."). Similarly, the announcement of the study by the Harvard Law School (where one of the co-authors is a tenured faculty member) opened with a statement that the study had found that "[n]early half of all Americans who file for bankruptcy do so because of medical expenses."

In addition, study’s authors made numerous public statements in connection with the study's release that would understandably cause people to think that it was about crushing medical debt. E.g.:

*Co-author Elizabeth Warren said in the Harvard Law School announcement of the study that "[a] broken health care finance system is bankrupting middle class America."

*Lead author David Himmelstein said, "Our study is frightening .... Too often, private health insurance is an umbrella that just melts in the rain."

*Co-author Steffie Woolhandler echoed Himmelstein’s statement with her own similar comment, "Our study is fairly shocking .... We found that, too often, private health insurance is an umbrella that melts in the rain."

No wonder Reuters and others thought they were dealing with a study about medical bills.

Third, the difference between "half of all bankruptcies are caused by medical bills" and "half of all bankruptcies are somehow medically related" is a huge one. As I alluded to before, at least three of the authors to the study are critics of the nation’s current health care finance policy and have used the study as an opportunity to offer their opinions on the subject. "Covering the uninsured isn’t enough. We must also upgrade and guarantee continuous coverage for those who have insurance," Dr. Woolhandler 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."

The problem is that if it’s not true that "half of all bankruptcies" involve medical debt, the most comprehensive of all health care coverage won’t solve the problem. Indeed, as I said in the National Review Online essay, it may even be counterproductive. Mandatory comprehensive health care coverage will mean more expensive health care coverage. That’s just cold, hard reality. Some employers or employees may try to make up the difference by cutting corners on disability insurance. Other employers may hire fewer employees. If it turns out that it is lack of adequate disability insurance that is really driving these bankruptcies, then debtors who fall ill or who are injured or unemployed will be worse off, not better off, as a result of having comprehensive health care coverage.

I think I understand what’s confusing my friend Nephew. He seems to think that it shouldn’t matter whether the study is about bankruptcies caused by crushing medical debt or bankruptcies caused by a medical catastrophe that prevents the debtor from earning a living. In either event, it seems unfortunate. He is too focused on the bankruptcy bill. When this study was announced in February (and when my National Review Online piece was written and published), the study was being touted as proof of the need for health care finance reform. That’s what those portions of the essay are focused on, and not so much on the recent bankruptcy bill.

(2) Now let’s get to the part of the article that arguably has a greater bearing on the bankruptcy bill. In the National Review Online, I argued that in order to get to the point where the authors could state that half of all bankruptcies have a "medical cause," they had to include a number of dubious case categories, including bankruptcies in which the debtor cited chronic gambling, alcohol and drug addiction, and birth or adoption as a substantial cause, as well as all cases in which the debtor had paid more $1000 over the two-year period leading up to the bankruptcy. The last category is especially misleading. The debtors in it did not have to claim that medical bills were a special problem for them. It was sufficient that they spent $1000–hardly an unusual sum for a family over two years. Most families probably spent that much on groceries too. Yet you wouldn't say their bankruptcies were caused by groceries.

Nephew is apparently concerned that I failed to state that not all of the categories included by the authors as bankruptcies with "a medical cause" were misleading. It’s a strange criticism in view of the fact that I specifically state, "Don’t get me wrong. Some bankruptcies are caused by crushing medical debt. But they aren’t half of all bankruptcies ...." If I’m willing to concede that some bankruptcies are caused by medical bills, then it’s pretty obvious I’m willing to concede that some bankruptcies are medically related. Indeed, my essay specifically states that debtors in 28.3% of all bankruptcies identify "illness and injury" as a substantial cause (although not necessarily the primary cause) of their bankruptcy.

Nephew, however, thinks that I should have also pointed out that in 21.3% of bankruptcies, the debtor or the debtor’s spouse had lost at least two weeks of work-related income because of illness or injury." Gosh, I thought I was being nice by using the larger 28.3% figure. In writing the National Review Online piece, I was willing to assume for the sake of brevity that the 28.3% was a fair one. In fact, I believe that even that figure is probably substantially overstated. But if Nephew would prefer that I use the lesser figure of 21.3%, then fine. The point is that it is misleading to claim that 54.5% of all bankruptcies have a "medical cause." It simply isn’t so.

Maybe Nephew is under the impression that these two figures can be added together to arrive at 49.6% of all bankruptcies. I can assure him that isn’t so. These figures overlap substantially. If that weren’t so, the authors would be claiming that 97.6% of all bankruptcies have a "medical cause," since that’s what the figures would add up to.

Okay, I’ve gone on too long. I’m going to take my "spectacularly stupid" ... uh ... analysis and get some sushi.