60% of bankruptcies in 2007 were from medical bills. Why this should freak you out.

by phil on Wednesday Jun 17, 2009 7:12 PM

Even if you "do everything right," this should still concern you, because most of the debtors were well-educated, owned homes, and had middle-class occupations. Oh, and three-quarters had health insurance.

Three-quarters! Isn't health insurance supposed to protect you from this? Do you know how many bankruptcies were filed by members of your health insurance provider? Do you know how big their legal budget is in order to not have to pay you money?

Non-Americans in developed countries do not have this anxiety.

Link to the study.


dbp said on June 18, 2009 3:49 PM:

Megan McArdle went over the fundamental dishonesty of this study earlier this month:


"Are Warren, et. al. unaware that bankruptcies fell by half? No bankruptcy analyst could possibly be unaware of this fact; it has been the most talked-about phenomenon in the bankruptcy area since the 2005 law was passed. Moreover, they're clearly familiar with the filings data, because they use it to make their point:

The number of filings spiked in mid-2005 in anticipation of the new law, then plummeted. Since hten, filings have increased each quarter. They are likely to exceed one million households in 2008, representing about 2.7 million people.

What's left out here? That in 2001, 1.45 million households filed for bankruptcy. In 2007, that number was 727,167. Had their paper done the basic arithmetic, readers would easily have seen that their own numbers imply a decrease in medical bankruptcies, from about 750,000 to slightly over 500,000. Yet their paper does not merely ignore this fact; it uses language that seems deliberately designed to conceal it. I invite any of my readers to scan the paper for any hint that medical bankruptcies had fallen significantly over 6 years."

Philip Dhingra said on June 18, 2009 3:59 PM:

Thanks for the heads up.

However, I'm not sure it debunks the study. The study is about the proportion of bankruptcies that are health-related, not the total amount. Maybe it takes the edge off the panic, in that you can't imply that more medical bankruptcies are happening (clearly there are less)

But my post is that you and I (unless you're a member of the upper-class) have a legitimate anxiety about going bankrupt one day due to medical-related causes. That is still true, and will be true until there's meaningful healthcare reform.

dbp said on June 19, 2009 11:04 AM:

Yes, you are right: Us members of the middle class do have reasonable anxiety about medical costs driving us bankrupt. My family is (thank goodness) very healthy, so it has only really been an abstract concern.

I'm not sure though that healthcare will help in a practical way. It all depends on what we mean by healthcare reform of course, but in the final analysis; cost control can come from one of two places: 1. People who directly pay a large fraction of the cost deciding that certain treatments are just not worth the expense. 2. A beaurocratic system that essentially spits-out an answer--"You are a 70 year-old smoker who needs a triple bypass surgury--the state will not pay for it".

There are pros and cons to each of these approaches and lots of room for gradations between them.

Philip Dhingra said on June 19, 2009 11:23 AM:

Okay, maybe your fears are founded. But maybe you have a 1% chance of scenario 2 happening under socialist medicine. But you also have a 15% chance of any of those other nightmare scenarios illustrated in Sicko happening in capitalist medicine.

I guess capitalist medicine will make you feel better because at least you have freedom. Freedom to sue your insurance company, freedom to sue your hospital, freedom to choose from a handful of really expensive options. But if these freedoms were so good, wouldn't Americans be happier with their healthcare? Why do studies keep showing that people in all the other developed countries with universal healthcare are happier with it?

The reason why most Americans don't care about that statistic is because most Americans aren't sick right now. Most Americans aren't in bankruptcy court right now over medical bills. It's the Wobegon Syndrome. Everything is fine with me now, so everything must be fine with the whole thing.

Steve said on June 21, 2009 8:41 AM:

Health care doesn't have to be exclusively socialist or "capitalist". The Australian system is a good example. Everyone is provided with free public health care and about 40-50% also have private health insurance. You have the benefit of efficient, effective "capitalist" healthcare, and the safety net of the public system if something like what you described were to happen.

Philip Dhingra said on June 21, 2009 8:58 PM:

That's very interesting. I'll have to look into that.

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