Half of Bankruptcy Due to Medical Bills -- U.S. Study
by Maggie Fox
WASHINGTON - Half of all U.S. bankruptcies are caused by soaring medical bills and most people sent into debt by illness are middle-class workers with health insurance, researchers said on Wednesday.
The study, published in the journal Health Affairs, estimated that medical bankruptcies affect about 2 million Americans every year, if both debtors and their dependents, including about 700,000 children, are counted.
"Our study is frightening. Unless you're Bill Gates you're just one serious illness away from bankruptcy," said Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School who led the study.
"Most of the medically bankrupt were average Americans who happened to get sick. Health insurance offered little protection."
The researchers got the permission of bankruptcy judges in California, Illinois, Pennsylvania, Tennessee and Texas to survey 931 people who filed for bankruptcy.
"About half cited medical causes, which indicates that 1.9 to 2.2 million Americans (filers plus dependents) experienced medical bankruptcy," they wrote.
"Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset of illness."
The average bankrupt person surveyed had spent $13,460 on co-payments, deductibles and uncovered services if they had private insurance. People with no insurance spent an average of $10,893 for such out-of-pocket expenses.
snip.
Bankruptcy specialists said the numbers seemed sound.
"From 1982 to 1989, I reviewed every bankruptcy petition filed in South Carolina, and during that period I came to the conclusion that there were two major causes of bankruptcy: medical bills and divorce," said George Cauthen, a lawyer at Columbia-based law firm Nelson Mullins Riley & Scarborough LLP.
"Each accounted, roughly, for about a third of all individual filings in South Carolina."
He said fewer than 1 percent of all bankruptcy filings were due to credit card debt. "That truly is a myth," Cauthen said in a telephone interview.
Cauthen said he was not surprised to hear that so many of the bankrupt people in the study were middle-class.
"Usually people who have something to protect file bankruptcy," he said. "The truly indigent -- people that we see on the street -- there is no relief that we can give them."
snip
She said many employers and politicians were pressing for what she called "stripped-down plans so riddled with co-payments, deductibles and exclusions that serious illness leads straight to bankruptcy."
Thanks! but also this---
http://www.mensnewsdaily.com/archive/u-v/usher/2005/usher030905.htm
Divorce is a primary predictor of bankruptcy. Data on the actual percentage of bankruptcies driven by divorce is often considered “too hot” to talk about, so most studies keep things lumped (or merely expressed in terms of the women’s perspective). It is difficult to clearly identify the real percentage.
But we do know this:
In the “Fragile Middle Class”, Teresa Sullivan first emphasizes divorce as the primary cause; “Because people’s financial troubles so often arise from other sources, such as divorce or serious illness, they also reflect in part the social pathology of the great middle of American society.”
The National Consumer Law Center placed an emphasis on divorce as a primary causal factor in their testimony before Congress in 1998: the average bankruptcy occurs “because of the convergence of consumer debt, job loss and divorce ... when a family splits up, the pressure of running a household with less total income is impossible.” They also cite downsizing, economic dislocation, income disruptions and underemployment as major factors.
"About half cited medical causes, which indicates that 1.9 to 2.2 million Americans (filers plus dependents) experienced medical bankruptcy," they wrote.
This article states that the role of credit card debt in bankruptcy is "truly a myth." My problem, at least with how the data is presented here, is that it seems to me you need to know a person's comprehensive financial situation before you can take their word for it that medical bills broke the camel's back. A person already maxed out (or beyond) on consumer debt is much less likely to be able to absorb a $12K or so (the average in the article) medical bill. A person with little debt probably can---considering that the people in the first category may have around $12K in credit card debt alone anyway and they were carrying that somehow before the medical bill. Also don't most medical billers have ways to pay by installment, etc.? So what I don't get is how many people can carry about $12K in credit card debt and be okay, but they get a $12K medical bill, which they also can pay through an installment plan, and they file for bankruptcy. I could see huge medical bills ($50K +) putting an individual into bankruptcy, but these numbers are not that big compared to voluntary debt many individuals take on anyway. (Note the article specifically says these are mostly individuals with middle-class and upper incomes.) You can hardly buy a car for $12K, but most people would think nothing of taking on car debt. Even if they have a bunch of other debt! They want a car, they get it. But a $12K medical bill--file bankruptcy. ?? I guess what I'm saying is that it seems to me that it's not necessarily correct to conclude that "medical bills" caused a bankruptcy when it may be that the reason the medical bill "could not" be paid is that the individual was already too deeply in debt.
From the article you cited:
"Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset of illness."
In those cases, the illness did not lead to bankruptcy. A lack of prudent financial planning did. I've been seriously ill/injured twice, and absorbed significant out-of-pocket costs both times (well above the average costs cited here). Neither event forced me into bankruptcy. Heck, I didn't even come close.
But for the guy who charges a lifestyle that's above his means and does not save for a rainy day, yeah, ANY unexpected expense is going to ruin him.
Yikes. Socialized medicine doesn't look so bad. At least you don't end up a pauper because you got sick.
If the credit card companies were wise, they should start health insurance companies and work both sides of the street.