What's most likely to bankrupt you?

Harvard researchers say 62% of all personal bankruptcies in the US in 2007 were caused by health problems -- and 78% of those filers had insurance.
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By BusinessWeek

Medical problems caused 62% of all personal bankruptcies filed in the U.S. in 2007, according to a study by Harvard researchers. And in a finding that surprised even the researchers, 78% of those filers had medical insurance at the start of their illnesses, including 60.3% who had private coverage, not Medicare or Medicaid.
Medically related bankruptcies have been rising steadily for decades. In 1981, only 8% of families filing for bankruptcy cited a serious medical problem as the reason, while a 2001 study of bankruptcies in five states by the same researchers found that illness or medical bills contributed to 50% of all filings.
This newest, nationwide study, conducted before the start of the current recession by Drs. David Himmelstein and Steffie Woolhandler of Harvard Medical School, Elizabeth Warren of Harvard Law School and Deborah Thorne, a sociology professor at Ohio University, found that the filers were for the most part solidly middle class before medical disaster hit. Two-thirds owned their homes, and three-fifths had gone to college.

But medically bankrupt families with private insurance reported average out-of-pocket medical bills of $17,749, while the uninsured's bills averaged $26,971. Of the families that started out with insurance but lost it during the course of illnesses, medical bills averaged $22,658.

"For middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, co-payments and deductibles that illness can put you in the poorhouse," said lead author Himmelstein. "Unless you're Warren Buffett, your family is just one serious illness away from bankruptcy."
The study underscores President Barack Obama's arguments in calling for health care reform legislation this year. In a recent letter to Democratic Senate leaders, the president said: "Health care reform is not a luxury. It's a necessity we cannot defer. Soaring health care costs make our current course unsustainable. It is unsustainable for our families, whose spiraling premiums and out-of-pocket expenses are pushing them into bankruptcy and forcing them to go without the checkups and prescriptions they need."

The study was funded by the Robert Wood Johnson Foundation and published online by The American Journal of Medicine. It will appear in the Journal's August print edition. The researchers examined the court records of a random sample of 2,314 bankruptcy filings across the nation during early 2007 and contacted those filers for written explanations. The researchers then followed up with extensive phone interviews of 1,032 of those filers.

They found that a number of medical factors contributed to a family's financial disaster. More than 90% of medically related bankruptcies were caused by high medical bills directly or medical costs that were so high the family was forced to mortgage their home. The remaining 8% went bankrupt because a medical problem caused them to lose income.

The authors were not able to track credit card defaults caused by medical bills, but a 2007 study found that, of low- and middle-income households with credit card debt, 29% used their plastic to pay off medical expenses.
Individuals with diabetes, one of the most common chronic diseases in the U.S., and those with neurological illnesses such as multiple sclerosis had the highest costs, an average of $26,971 and $34,167, respectively. Hospital bills were the largest single expense for half of all medically bankrupt families.

Woolhandler, an advocate of a single-payer health care system, said lawmakers in Washington should reconsider health care reform in light of the study.
"Covering the uninsured isn't enough," she said. "Reform also needs to help families who already have insurance by upgrading their coverage and assuring that they never lose it."

This article was reported by Catherine Arnst for BusinessWeek.
Published July 15, 2009