NCPA - National Center for Policy Analysis

MEDICAL BILLS AND BANKRUPTCY FILINGS

August 23, 2006

The idea that more than half of all bankruptcies are caused by medical debt is incorrect, according to a new study by Aparna Mathur, a research fellow at the American Enterprise Institute.  In fact, she found that only about one-quarter of bankruptcy filers have debts that are primarily medical in nature.  Far more common are bankruptcies related to credit card debts.    

According to Mathur:

  • Nearly 27 percent of filings are a consequence of primarily medical debt.
  • In approximately 36 percent of cases, medical debts co-exist with primarily credit card debts.
  • Studying the post-bankruptcy scenario, filers are 19 percent less likely to own a home even several years after the filing, compared to non-filers.
  • However, the consequences are less adverse for medical filers -- i.e. those who filed due to high medical bills -- compared to other filers.

Mathur does not find support for the view that medical debts are the leading cause of bankruptcy filings. In fact, households who are most likely to file are those with primarily other forms of debt, such as credit card or car debts, who also incur medical debts.

  • Altogether, a 10 percent increase in debts of these households would cause bankruptcy filings to go up by 36 percent on average.
  • A 10 percent increase in debts of households with primarily medical debts would cause filings to go up by 27 percent on average.

She also finds support for the non-strategic adverse events view of bankruptcy.  In support of the latter, she finds that an adverse event such as losing work days due to illness significantly increases the likelihood of filing. 

Source: Aparna Mathur, "Medical Bills and Bankruptcy Filings," American Enterprise Institute, July 19, 2006.

For Mathur study: 

http://www.aei.org/docLib/20060719_MedicalBillsAndBankruptcy.pdf

For Himmelstein and Woolhandler study:

http://content.healthaffairs.org/cgi/content/short/hlthaff.w5.63v1

 

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