Most Americans are not familiar with the the role medical debt plays in consumer bankruptcy. One of the most alarming accounts of the role medical debt plays in bankruptcy ccomes from Ms. Aparna Mathur, a scholar from the American Enterprise Institute (AEI). In particular, Mathur concluded “nearly 27 percent of filings are a consequence of primarily medical debt.”

An important new paper on the topic of medical debt now comes from Ms. Melissa Jacoby at the University of North Carolina and Ms. Mirya Holman at Duke University. These legal scholars examined court records and survey responses from the Consumer Bankruptcy Project (CBP). They conclude, “By combining the methods, we find that nearly four out of five respondents had some financial obligation for medical care not covered by insurance in the two years prior to filing, but only about half of the court records contain identifiable medical debt, and of substantially more modest amounts.”

Here are some of the highlights of the Consumer Bankruptcy Project’s most recent research effort, “Medical Bankruptcy in the United States, 2007: Results of a National Study.” (Published June 4, 2009, by The American Journal of Medicine.)

  1. Between 2001 and 2007, the percent of medical bankruptcies increased from 49.6% to 62.1%. In 2007, that translated into approximately 866,000 medical bankruptcies.
  2. Between 2001 and 2007, there was a 50 percent increase in these types of “medical bankruptcies.”
  3. 77% of those who said an illness or injury directly led to the bankruptcy had health insurance at the onset of the illness/injury.
  4. Most of the medically bankrupt families were middle class before the illness or injury–they owned homes, had attended college, and had middle-class occupations.
  5. The greatest expenses for these medically bankrupt families was hospital bills.
  6. For these medically bankrupt families, their out-of-pocket medical expenses since the onset of the illness or injury averaged $17,943.

Based on these trends, are “health care” and “medicine” the new luxury goods that can only be purchased by wealthy Americans?

MORE ON: Managing Medical Bills on the Brink of Bankruptcy: Evidence and Implications from a National Study

Melissa B. Jacoby; University of North Carolina at Chapel Hill – School of Law

Mirya R. Holman; Duke University School of Law; University of North Carolina at Chapel Hill – Law Library; Claremont Colleges – School of Politics and Economics

ABSTRACT: This paper presents original empirical evidence on financial interactions between medical providers and their patients who go bankrupt shortly thereafter. We use a single dataset – information on a nationally representative sample of people who filed for bankruptcy in 2007 – to replicate and compare two conflicting methods of measuring medical burden that academics and government officials have used in the past. By combining the methods, we find that nearly four out of five respondents had some financial obligation for medical care not covered by insurance in the two years prior to filing, but only about half of the court records contain identifiable medical debt, and of substantially more modest amounts. Using new survey questions and a novel measure of measurement, we test several theories about the discrepancy and conclude that it is best explained by respondents shifting medical bills to consumer credit (credit cards, home equity loans). This behavior was especially prevalent among those who report that medical bills were a reason they filed for bankruptcy, although we find and report some demographic variation. The more detailed findings we present in the paper offer a window into the success of medical practice management techniques – a topic rarely discussed in the legal literature – in reducing providers’ exposure to losses and protecting them from the regulation that the bankruptcy system otherwise would impose. The data also present a cautionary tale about studies that measure bankruptcy filers’ medical burden using only court records; we find court records, standing alone, produce a substantial undercount and yet court record studies are frequently cited by academics, think tank scholars and law makers to cast doubt on survey-based studies in discussions of bankruptcy and health care finance reform.

Keywords: bankruptcy, health care, medical care, medical practice management, reluctant creditors, consumer law, credit cards, home equity loans, chapter 7, chapter 13

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