Medical Bankruptcy Claims Are Biased and Grossly Exaggerated

Published March 1, 2005

A new article in Health Affairs by David Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhandler is summarized in the media as revealing that half of all bankruptcies in the United States are caused by medical problems, especially inadequate insurance coverage.

That is certainly an attention-grabbing headline, and the fact that the authors are associated with the Harvard Medical and Law Schools gives the article an air of authority. But the article is so biased as to be worthless in even identifying a problem, and so grossly exaggerated that it buries rather than illuminates what may very well be a real problem.

Only Five Districts Studied

Most of the media reports seem to be based on a news release issued by Drs. Himmelstein and Woolhandler on Harvard stationery. It is headlined, “Illness and Medical Bills Cause Half of All Bankruptcies–2 Million Americans Financially Ruined Each Year.”

The material accompanying the news release includes a state-by-state breakdown of the problem in 2004, even though the Health Affairs article itself is based on only 1,700 cases filed in 2001 in just five federal judicial districts (there are 77 in the nation). The five districts–California, Illinois, Pennsylvania, Tennessee, and Texas–were chosen not because they are representative of anything, but because that is where the authors found federal judges who would cooperate with them in gathering bankruptcy information.

In the state-by-state breakdown, the authors claim there were 20,945 medical bankruptcies in Alabama in 2004, and they have similar seemingly precise numbers for each of the 50 states, plus Washington, DC (978 medical bankruptcies), Guam (183), the Northern Mariana Islands (7), and other territories.

This level of precision is obviously intended to forestall further discussion, even though the authors never looked at a single instance of bankruptcy in Alabama, DC, Guam, or any of the 69 other jurisdictions. And, remarkably, in every single state or territory, the rate of medical bankruptcies was just about 50 percent of the total. There were no outliers or exceptions.

Link to Insurance Weak

The authors claim that having health insurance didn’t stave off bankruptcy. They say in the news release that on average people with insurance at the start of an illness incurred out-of-pocket costs of $13,460, while the uninsured averaged $10,893 in out-of-pocket costs. Hence, Woolhandler’s conclusion that “covering the uninsured isn’t enough.”

But the greatest flaw in the study is the way it defines medical bankruptcy.

The authors define it as meaning anyone who declared bankruptcy and had at least $1,000 in “medical debts” or were off work for two weeks due to illness. These conditions didn’t have to cause the bankruptcy or even contribute to it. They could be merely incidental to someone declaring bankruptcy.

Undoubtedly some families do indeed have a problem when they get sick or injured, lose their jobs, and lose their health insurance as well. But the Health Affairs article provides absolutely no information about those families. Their real plight is lost in an effort to exaggerate and overstate the case.

Liberal Bias

Woolhandler and Himmelstein are cofounders of Physicians for a National Health Program, so it is not surprising they should conclude we need a national insurance plan.

Their news release reads, “According to study co-author Dr. Steffie Woolhandler, an Associate Professor of Medicine at Harvard and primary care physician in Cambridge, Massachusetts: ‘We need to rethink health reform. Covering the uninsured isn’t enough. We must also upgrade and guarantee continuous coverage for those who have insurance.

“Only national health insurance can do that. But we’re headed in the wrong direction. An increasing number of employers and politicians are peddling phony insurance–stripped-down plans so riddled with co-payments, deductibles and exclusions that serious illness leads straight to bankruptcy. We need real health security, not counterfeit coverage.'”

But putting everyone on Medicare clearly is not the solution, since the authors themselves conclude Medicare enrollment is no protection against bankruptcy.

Enabling people to own their own insurance plan would help. That would allow people to keep their coverage even when they become too ill to work and thus lose their job and the health insurance that may have come with it.

Need for Market-Based Solution

The best remedy might be widespread adoption of Health Savings Accounts (HSAs). People who are able to save money in an HSA while they are healthy will have a nest egg to fall back on when they become ill and incur extraordinary medical expenses, or when they lose their job and have to pay their own insurance premiums.

President George W. Bush’s proposal to create refundable tax credits to help lower-income people afford health insurance coverage would help, too. Those people who can no longer work and enjoy the benefit of an employer subsidy would be able to get help from the federal government instead.

We can be grateful Health Affairs published this article. Though it is grossly exaggerated, it does call attention to a need … for which consumer-driven health care is the best solution.

Greg Scandlen ([email protected]) is director of the Galen Institute’s Center for Consumer Driven Health Care and assistant editor of Health Care News.

For more information …

The full text of the Health Affairs article is available online at