Medical Costs Cited as Key Cause of Many Bankruptcies
Nearly half of the more than 1 million Americans who filed for bankruptcy protection last year did so at least in part because they couldn’t cope with medical bills or other financial consequences of illness or injury, according to a forthcoming study of U.S. bankruptcy filings.
The impact of medical costs is highest on women, families headed by women and older people, the study found. And lack of medical insurance was a key factor in only a minority of the filings.
“I thought we would be looking at a wholly uninsured group of Americans, and we’re not,” said Harvard law professor Elizabeth Warren. “These data suggest that underinsurance is a far bigger problem for middle-class families--underinsurance in the sense that it’s not enough to cover catastrophic medical costs, or it doesn’t cover all the financial implications” of illness, such as lost income.
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The findings illustrate how fragile middle-class status is for many U.S. families, Warren said. These families are “just one serious illness away from financial collapse,” she said. “What a scary way to think about America.”
William Binzel of MasterCard International Inc. said Warren’s findings agree with others he has seen: “In the overwhelming majority of cases, the person filing [for bankruptcy] experienced some economic catastrophe within the 12 to 24 months prior. So there’s an economic event somewhere in there that interrupts their income.”
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Warren and her colleagues, Teresa Sullivan, dean of graduate studies at the University of Texas, and lawyer Melissa B. Jacoby, surveyed bankruptcy filers in eight judicial circuits nationwide, accounting for about 18% of all filers.
Projecting the results nationwide, the study would mean that 326,441 bankruptcies last year were related to an illness or injury to the filer or a family member, and an additional 267,575 filers had substantial medical bills, though they would list other reasons--or give no reason--for their bankruptcies.
Warren said the implications of the findings are that if such families are denied the ability to wipe out debts in bankruptcy, some will lose their homes and “many of these people will face collection for the rest of their lives.”
It has long been true that some families are ruined financially every year by a devastating illness, such as cancer, Warren said. Often the combination of illness and heavy consumer debts prompts people to seek bankruptcy protection.
“The difference between what we saw 40 years ago and what we see today is that 40 years ago, when families were hit by a modest medical problem, they still had flexibility in their budget,” Warren said. “Their future income was unencumbered. Today families are carrying so much more consumer debt that even a modest medical bill can put them over the edge financially and they end up in collapse.”
