THURSDAY, June 4, 2009 (Health.com) — This year, an estimated 1.5 million Americans will declare bankruptcy. Many people may chalk up that misfortune to overspending or a lavish lifestyle, but a new study suggests that more than 60% of people who go bankrupt are actually capsized by medical bills.
Bankruptcies due to medical bills increased by nearly 50% in a six-year period, from 46% in 2001 to 62% in 2007, and most of those who filed for bankruptcy were middle-class, well-educated homeowners, according to a report that will be published in the August issue of The American Journal of Medicine.
“Unless you’re a Warren Buffett or Bill Gates, you’re one illness away from financial ruin in this country,” says lead author Steffie Woolhandler, MD, of the Harvard Medical School, in Cambridge, Mass. “If an illness is long enough and expensive enough, private insurance offers very little protection against medical bankruptcy, and that’s the major finding in our study.”
Dr. Woolhandler and her colleagues surveyed a random sample of 2,314 people who filed for bankruptcy in early 2007, looked at their court records, and then interviewed more than 1,000 of them.
They concluded that 62.1% of the bankruptcies were medically related because the individuals either had more than $5,000 (or 10% of their pretax income) in medical bills, mortgaged their home to pay for medical bills, or lost significant income due to an illness. On average, medically bankrupt families had $17,943 in out-of-pocket expenses, including $26,971 for those who lacked insurance and $17,749 who had insurance at some point.
Overall, three-quarters of the people with a medically related bankruptcy had health insurance, they say.
“That was actually the predominant problem in patients in our study—78% of them had health insurance, but many of them were bankrupted anyway because there were gaps in their coverage like co-payments and deductibles and uncovered services,” says Dr. Woolhandler. “Other people had private insurance but got so sick that they lost their job and lost their insurance.”
However, Peter Cunningham, PhD, a senior fellow at the Center for Studying Health System Change, a nonpartisan policy research organization in Washington, D.C., isn’t completely convinced. He says it’s often hard to tell in which cases medical bills add to the bleak financial picture without being directly responsible for the bankruptcies.
“I’m not sure that it is correct to say that medical problems were the direct cause of all of these bankruptcies,” he says. “In most of these cases, it’s going to be medical expenses and other things, other debt that is accumulating.”
Either way, he agrees that medical bills are an increasing problem for many people.
“I think medical bills are something that a lot of families are having a lot of difficulty with and whether it’s the direct cause of bankruptcy or whether it helps to push them over the edge because they already were in a precarious financial situation, it’s a big concern and hopefully that’s what medical reform will try to address,” he says.
The study may overestimate the number of bankruptcies caused by medical bills yet underestimate the financial burden of health care on American families, because most people struggle along but don’t end up declaring bankruptcy, according to Cunningham.
“Bankruptcy is the most extreme or final step for people who are having problems paying medical bills,” he says. “Medical bills and medical costs are an issue that can very easily and in pretty short order overwhelm a lot families who are on otherwise solid financial ground, including those with private insurance.”
His group’s research found that medical bills unduly stress 1 in 5 families.
Either way, the high cost of health care is a problem that’s probably getting worse for people in the United States, particularly since the economic picture became grimmer after the study was conducted.
“The recession didn’t happen until a year after our study,” says Dr. Woolhandler. “We’re quite sure that the problem of bankruptcy overall is worse, the numbers have been soaring, and the number this year is expected to be higher than it was before Congress tightened bankruptcy eligibility in 2005.”
In 2005, bankruptcies peaked at two million filings.
Comments (13)
The solution is a National Health Service for the United States, like what they have in the UK. At present, the US wastes about $7200 per person per year on a health care system that is largely illusory. The British NHS spends about $2900 (USD equivalent) per person per year to provide actual coverage (including dental care and vision services).
How to pay for the US National Health Service? Easy: a Federal 15% Value Added Tax. In 2008 consumer expenditures totaled $9953 billion; if 90% of these expenditures were subjected to a 15% VAT, the Federal government would have collected about $1340 billion from the VAT alone.
If this 15% VAT was combined with the elimination of all Federal income taxes on the bottom 95% of incomes, and the top 5% of incomes were subject to a 50% Federal income tax, we would have ended up with about $1693 billion in additional tax revenue in 2008. More than enough to cover the estimated $918 billion dollar cost to fully fund the US National Health Service, and provide an additional $775 billion for other uses.
The VAT would also force illegal aliens to pay taxes (or at least make tax evasion much more difficult).
Yeah! 15% sales tax on top the almost 10% state and local taxes! And no more income tax except on those evil rich people! Why even wait for government to make those policies? When you get sick just head to your town’s closest rich person and steal something valuable enough to pay the bills, they dont need that much money, so its ok right?
I look at it this way. They lived a lavished life and of course getting into many accidents and sickness cause by it. So now they can’t repay those bills.
Wow, is that cool or what??
National health care leads to one thing…worse health care. There’s a reason socialized medicine “seems” to cost less. That’s because medical treatment becomes harder to get. In Canada it can take months or over a year to get a simple X-Ray to tell you if you have cancer, and then you wait for the surgery. In the US you go in, you get your X-Ray results in less than a week and if it’s an emergency you get an operation right away. If this system was so bad, why are Canadians coming here when they can’t get their tests and procedures soon enough to save their own lives. Canadian government officials have been caught coming here for health care. Get your facts right. Health care needs reform, but one thing is absolute…Governments run exactly ZERO things profitably. Look at Amtrak, it’s a disaster. Everything the government touches costs too much, takes too long, and comes out looking like my 5 year old made it. If you want socialized medicine so bad move to a country where they have it. Oh wait, it’s unlikely you’ll be able to become a citizen in any socialist countries since they have some of the toughest rules around. Mostly because they don’t want to share. haha.
Yes, it true, i spend all my money in medical bill.. i hardly spend anything else.
Dan,
I’ve lived in Canada and, as an American, I hate to say it, but their system is better overall.
In the New York Times on Wednesday, Kristoff said that the infant mortality rate in Beijing is 27% lower than in New York City. The U.S. ranks 28th in the world in the infant mortality rate. It would be disgusting enough to say that no one in the U.S. cares that American babies die because we’re greedy. But if you look at the figures that AC gives, you’ll see that it’s not even that we’re too cheap to save ourselves. What’s wrong with us I don’t know. Too brainwashed by insurance companies? I really don’t get it. We pay a huge amount of money for mediocre care. Are we stupid? I don’t want to think so, but my fellow countrymen puzzle me.
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Since 1984 I have had 49 operations or procedures. Six
times I was almost killed by
the so-called medical professionals. I can tell you from experience that the single one thing that the entire group are concerned about is money. PERIOD!
I had surgery last summer and after insurance the bill was $28,000.00. I offered to pay $50.00 monthly ; that is all I could afford on my meager income; they refused and turned it over to collections who also refused less than $100 @ month; now they are taking me to court and will probably place a wage garnishment on me. I can’t live and I mean the basics rent, utilities if they do; I don’t even own a vehicle, I walk everywhere I go. I don’t think it’s fair that they can do this and refuse the payments I offered in the beginning!
Most people that file bankruptcy because of medical bills do so only because they don’t want to pay the hospital bills. If you have a job more often than not you have insurance. I work in a small factory I have $1000 out of pocket. I had back surgery ($176000) I paid $1000 total. I ask the hospital if I could make payments and they said sure how about $12 a month. My story is more common than the ones where people get stuck with tens of thousands of dollars of debt. And, Sue if you still owe $28000 after insurance paid then you have the wrong insurance and should have done something about it long ago. People if you don’t want to pay your medical bills file bankruptcy, If you don’t want to pay a bunch after insurance do some researce and find a policy that fits you and your income. Don’t complain take responsability for yourself.
Bill, I’ve got to disagree. My wife has spinal problems. In two different instances where there were lots of expenses, the insurance companies found a way to drop us and stick us with the bills. We’re over $17k in debt now. Two different insurers did this, at two different times. One was Mail Handlers, the other was Blue Cross Blue Shield. Looking back, I can’t see anything I did wrong. We paid our bills, we followed up when there were problems. We still got dropped via bureaucratic nonsense and the debt fell onto us. For example, Mail Handlers sent us our membership bill as well as someone elses. When the someone else didn’t pay, they canceled OUR account, and we never got reinstated. I’m glad this wasn’t your experience, but believe me when I say does it happen to good folks. I’ve not declared bankruptcy, and I hope I won’t have to, but depending how things go I may have to. The current state of medical care does bankrupt many families, just like the article says.
To many people and uninsured and many are under insured with large deductibles. I’ve work in insurance over 15 years and the average person does not know how to reduce their medical or where to research the info. CMS has a website that link (although very confusing)to Medicare rates. This is the basis of all physician and hospital bills. What you see is medicare times 200%.
Reasonable value of an $1,800 MRI bill is $680.00. Most people would beg for a small discount and large payments. When you should be paying closer to $850 maximum.
Before you go broke paying doctor and hospitals, check in to alternatives and negotiate the heck out the provider.