Medical Bankruptcy and the Need to Reduce Health Care Costs

One of the primary arguments for the introduction of electronic health records and other medical related IT innovations is that these measures will help to reduce the costs of health care delivery.

Nothing drives home this urgent need more than a recent study by researchers from Cambridge Hospital/Harvard Medical School, Harvard Law School and Ohio University - a follow up to their 2001 study that has been widely cited by policy leaders, including President Obama.

As described in an article to be published in the August 2009 issue of the American Journal of Medicine and released online yesterday, medical problems contributed to nearly two-thirds (62.1 percent) of all bankruptcies in 2007. Between 2001 and 2007, the proportion of all bankruptcies attributable to medical problems rose by 49.6 percent.

Surprisingly, most of those bankrupted by medical problems had health insurance, according to news releases issued by the universities. More than three-quarters (77.9 percent) were insured at the start of the bankrupting illness, including 60.3 percent who had private coverage. Most of the medically bankrupt were solidly middle class before financial disaster hit. Two-thirds were homeowners and three-fifths had gone to college. In many cases, high medical bills coincided with a loss of income as illness forced breadwinners to lose time from work. Often illness led to job loss, and with it the loss of health insurance.

Even apparently well-insured families often faced high out-of-pocket medical costs for co-payments, deductibles and uncovered services. Medically bankrupt families with private insurance reported medical bills that averaged $17,749 vs. $26,971 for the uninsured. High costs - averaging $22,568 - were incurred by those who initially had private coverage but lost it in the course of their illness.

The research, carried out jointly by researchers at Harvard Law School, Harvard Medical School and Ohio University, is the first nationwide study on medical causes of bankruptcy. The researchers surveyed a random sample of 2,314 bankruptcy filers during early 2007 and examined their bankruptcy court records. In addition, they conducted extensive telephone interviews with 1,032 of these bankruptcy filers.

Their 2001 study, which was published in 2005, surveyed debtors in only five states. In the current study, findings for those five states closely mirrored the national trends.

Subsequent to the 2001 study, Congress made it harder to file for bankruptcy, causing a sharp drop in filings. However, personal bankruptcy filings have soared as the economy has soured and are now back to the 2001 level of about 1.5 million annually.

Dr. David Himmelstein, the lead author of the study and an associate professor of medicine at Harvard, notes, "Our findings are frightening. Unless you're Warren Buffett, your family is just one serious illness away from bankruptcy. For middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, co-payments and deductibles that illness can put you in the poorhouse. And even the best job-based health insurance often vanishes when prolonged illness causes job loss - precisely when families need it most. Private health insurance is a defective product, akin to an umbrella that melts in the rain."

Photo by José Goulão. CC Attribution-Share Alike 2.0 Generic