Middle-class, insured Americans filed 75% of personal bankruptcies due to healthcare costs

New study shows that middle-class, insured Americans were driven to bankruptcy by medical debt associated with soaring healthcare cost they couldn’t afford.

Soaring health care costs: Americans with serious health problems usually end up with serious financial problems

A surprising result of a new study published in The American Journal of Medicine showed that 62.1% of personal bankruptcies filed in 2007 -- before the economic downturn -- we're due to medical debt associated with healthcare costs.

Most Americans who filed for personal bankruptcy due to health care costs were middle-class, homeowners who had gone to college -- 75% reported having health insurance.

Older studies on bankruptcy were problematic because they were based solely on court records. Even though they showed that rates of medical bankruptcy were substantial, these court-based studies often understated medical bankruptcies. Why? Many medical debts were not recognizable on court records.

Many medical debts were disguised as credit card debt or mortgages. Most medical debtors charged health care they couldn't afford to credit cards or they mortgaged their homes to pay for medical bills. In addition, debts due to hospitalization or doctor visits -- which were turned over to collection agencies -- were not usually recognizable on court records.

The new study by David U. Himmelstein, Deborah Thorne, Elizabeth Warren and Steffie Woolhandler used a novel method to analyze medical bankruptcy. They obtained 118,308 bankruptcy petitions filed in the United States between January 25, 2007 and April 11, 2007. A random national sample of 2,314 bankruptcy filers were surveyed and interviewed; their court records were also abstracted.

The study revealed these findings:

• The highest out-of-pocket health care costs were associated with non-stroke neurological illnesses, such as multiple sclerosis, followed by diabetes, injuries, stroke, mental illnesses and heart disease.
• For 48% of medical debtors, hospital bills were the largest single out-of-pocket expense. Prescription drugs for 18.6%, doctors’ bills for 15.1% and insurance premiums for 4.1% of other debtors were the largest expense. Medical equipment and nursing homes where the largest expense for the remainder of medical debtors.
• Illness-associated loss of income also contributed to financial problems related to medical bills. In 37.9% of medical debtors, the illness resulted in the patient's family member losing or quitting a job; in 24.4% of debtors, the illness led to getting fired.
• Unaffordable healthcare costs contributed directly to the bankruptcy of 92% of medical debtors.

The financial burden of illness has been increasing not only for the poor and uninsured. Even insured, middle-class families were driven toward bankruptcy by unaffordable healthcare costs.

The findings of this new study provide strong support for President Barack Obama's arguments in calling for health-care reform.

According to the authors of the study, “the U.S. healthcare financing system is broken not only for the poor and uninsured, but also for insured, middle-class families – they frequently collapse financially under the strain of the current health care system.”

With many Americans not living a healthy lifestyle, the staggering health care costs from the resulting chronic illnesses can lead to financial disaster for millions of families. In turn, this can lead to billions of dollars in health care costs for the United States – and poses a major threat to the long-term economic health of this country.

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