Medical bills cause 62 percent of American bankruptcies

By Joan McCarter
Daily Kos
Thu Jan 05, 2012

A study released Thursday [pdf] by the American Journal of Medicine finds a huge increase—nearly 20 percent—in medical bankruptcies between 2001 and 2007. Sixty-two percent of all bankruptcies filed in 2007 were tied to medical expenses. Three-quarters of those who filed for bankruptcies in 2007 had health insurance.

Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%. In logistic regression analysis controlling for demographic factors, the odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001. […]

In 2007, before the current economic downturn, an American family filed for bankruptcy in the aftermath of illness every 90 seconds; three quarters of them were insured.

Since 2001, the proportion of all bankruptcies attributable to medical problems has increased by 50%. Nearly two thirds of all bankruptcies are now linked to illness.

How did medical problems propel so many middle-class, insured Americans toward bankruptcy? For 92% of the medically bankrupt, high medical bills directly contributed to their bankruptcy. Many families with continuous cover- age found themselves under-insured, responsible for thou- sands of dollars in out-of-pocket costs. Others had private coverage but lost it when they became too sick to work. Nationally, a quarter of firms cancel coverage immediately when an employee suffers a disabling illness; another quarter do so within a year. Income loss due to illness also was common, but nearly always coupled with high medical bills.

Note that this is data from 2007, before the great recession began, meaning the picture has likely become more bleak in the last five years. Also discouraging is the evidence that just having health insurance is no magic bullet. Costs for prescription drugs, hospitalizations and the need for chronic care for conditions like multiple sclerosis, diabetes, heart disease and psychiatric illnesses—even with insurance—were the most frequent causes for medical bankruptcy, with hospital costs leading.

The Affordable Care Act will address some of these issues, but certainly not all. Health care reform that gets at the biggest drivers of costs still has to be addressed. It won't happen in the current political climate, not with a Republican-controlled House and a Senate in paralysis because of the minority's obstruction, not to mention an extremely robust health care industry lobby.