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Do Health Care Costs Cause Bankruptcy?

By April 4, 2018Commentary

One of the purposes of this blog is to encourage people to question everything–to ask if supposed facts are really true and if relationships among events and factors actually exist.  It is important for everyone in this information-overload world to adopt that attitude.  One exaggeration used to sell the federal health reform law was the idea that health care costs were so stressing consumers that large numbers of them were filing for bankruptcy.  A commentary in the New England Journal of Medicine questions the truth of this assertion (somewhat reluctantly).   (NEJM Article)   Our beloved former president claimed that health care costs were causing a bankruptcy in American every 30 seconds.  Lets see, if my math is right that would be two a minute, 120 an hour, 2880 a day and 1,051,200 a year.  Uh, no, that just isn’t even possible.  His statements, which he obviously undertook to make without having someone do any real checking, but what does the truth matter when you are trying to get an a priori obviously great reform law passed, were based on an article claiming that medical costs cause 60% of all bankruptcies in the US.   These articles were completely fallacious, since they assumed that anytime a person who filed for bankruptcy said they had some stress from medical costs, those costs caused the bankruptcy, in other words, medical costs were always the tipping point or the marginal excess financial liability.  Since a lot of Americans, maybe 20% by some estimates (also not to be trusted), say they have substantial medical debt, but less than 1% file for bankruptcy in a year, that tipping point assumption makes no sense.

The authors of the commentary, who are supporters of the ACA, instead examined credit records for people admitted to a hospital in California for an injury or illness (note that factor) and examined the timing of any bankruptcy filing.  They found an increase in bankruptcies in the years after a hospitalization, but a small one; they claim that only 4% of personal bankruptcies are related to medical expense.  There reasoning is equally fallacious.  First of all, there is a clear increasing trend of bankruptcy filing among this population even prior to the hospitalization, so one suspects that other correlated factors relate both to their health issues and their personal financial stress.  Second, the impact on bankruptcies continues long after the hospitalization, which also suggests other factors are at work, and it particular one assumes that these people are experiencing significant income loss, which would be much more a contributing factor to bankruptcy than an increase in debt level.  Without doing detailed demographic and socio-economic adjustments, and frankly, looking at the individual financial management skills of the individuals, I don’t see why you would even try to draw these kind of conclusions.  That is not to say that consumers aren’t stressed by health costs; they clearly are, but we need fewer of these exaggerated arguments that just cause credibility problems and don’t contribute to solutions that will actually address problems.

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