Bankruptcy News

Medical Costs Contribute To Fewer Than One In Five Bankruptcies

Bethesda, MD -- Data from a much-cited 2005 study show that medical expenses contribute to less than 20 percent of all bankruptcies, far fewer than the 50 percent estimate offered by the original study’s authors, according to an article by David Dranove of the Kellogg School of Management and Michael L. Millenson, a consultant and visiting scholar at the Kellogg School, published today as a Health Affairs Web Exclusive.

In “Medical Bankruptcy: Myth Versus Fact,” Dranove and Millenson also characterize most Americans who declare bankruptcy because of medical expenses as “marginally middle class” at best, and they say that a single-payer national health insurance system would not be an effective weapon against such bankruptcies.

In their paper, Dranove and Millenson critique “Illness and Injury as Contributors to Bankruptcy,” published 2 February 2005 as a Health Affairs Web Exclusive and written by David Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhander. Himmelstein and Woolhandler are members of the Harvard Medical School faculty; Warren teaches law at Harvard; and Thorne, formerly of Harvard, is currently an assistant professor of sociology and anthropology at Ohio University.

Two Perspectives on Dranove and Millenson’s paper also appear on the Health Affairs site. The first is Himmelstein and colleagues’ response to the Dranove and Millenson; the second is an overview offered by Robert Seifert and Mark Rukavina, the policy director and executive director of the Access Project. Dranove and Millenson also present a short response to Himmelstein and colleagues’ Perspective.

“It is insufficient to show that medical problems are associated with bankruptcy; one must determine whether, and to what extent, medical spending causes bankruptcies,” Dranove and Millenson write. To answer that question, “we must identify those people who stated that illness or injury was a cause of bankruptcy and also stated that medical bills contributed to bankruptcy.” In reanalyzing the data from Himmelstein and colleagues, Dranove and Millenson conclude that “medical expenditure bankruptcies” actually constituted only 17 percent of the bankruptcy filers those authors surveyed.

They add: “Even for that 17 percent, we cannot state with any degree of certainty whether medical expenses were the most important cause of bankruptcy. To move from causation to magnitude, it is necessary to perform multivariate statistical analysis,” using a control group of solvent individuals and including variables such as employment and marital status. While Himmelstein and colleagues did not perform this type of statistical analysis, other studies that did so concluded that “medical debt is like any other debt -- a cause but not the most important cause of bankruptcy,” Dranove and Millenson write.

Indeed, while Himmelstein and colleagues assert that “solidly middle-class Americans are at risk,” of being bankrupted by health care costs, Dranove and Millenson note that the median income of the debtors surveyed by Himmelstein and colleagues was only $25,000. This is a group for whom “health care spending amounting to a few thousand dollars in the two years prior to bankruptcy would represent just the tip of the iceberg threatening to sink their creditworthiness,” the two researchers say.

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	Did You Know?
	Can Co-Signers Be Protected If you file Chapter 7 bankruptcy, the creditor can proceed against your co-signers, according to the terms of the debt agreement. However, if you file a Chapter 13 debt adjustment, a co-signer is protected if the following conditions are met. The debt must be a consumer debt. Also, the debt may not be incurred in the ordinary course of business, and the co-signer cannot benefit from the proceeds of the debt.