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Will Medical Bankruptcy Be a Ghost of the Past?

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Trudy LiebermanDuring the health care debates, didn't you hear the president repeatedly tell the crowds that reform would mean that people would no longer be forced into bankruptcy because of illness?'  Insuring people who previously had no insurance does give them a cushion of protection and will mean that some of them will avoid bankruptcy court'but not all.

That finding comes from a study released last week by researchers Steffie Woolhandler, David Himmelstein and Deborah Thorne.'  The new study examines what happened in Massachusetts after the state enacted its own health reform law in 2006, the model for the federal legislation.' '  The researchers concluded that decreasing the number of people without insurance does not necessarily mean they are protected from bankruptcy.

The research team looked at bankruptcy filings in the Bay State and found that between 2007 and 2009, the number of bankruptcies due to medical expenses increased by more than one-third, from about 7500 to about 10,000.' '  The share of all bankruptcy filings resulting from medical debt declined from about 59 percent in early 2007 to about 52 percent in 2009, a decrease the researchers said was not statistically significant.'  'While we can't completely rule out the possibility that the reform reduced medical bankruptcies, any reduction is certainly small,' said Dr. Himmelstein, the study's lead author.' ' 

Why do medical bankruptcies persist?' '  The Massachusetts study offers a warning.'  All across the country, medical costs remain sky high, and insurance increasingly covers too little.'  'Massachusetts health reform takes many of the uninsured and makes them underinsured,' Himmelstein explained.' '  That could happen everywhere when health reform is fully implemented in 2014.' '  Since efforts to slow down medical costs have so far been ineffective, and it's not clear that new proposals for changing the way doctors are paid will be any better, the solutions seem to make patients pay more of the costs themselves.'  They do so either by offering so-called mini-med policies, which offer limited benefits or by making policyholders pay higher deductibles, copayments and coinsurance for their coverage that might or might not offer decent benefits.' ' 

These policies appeal to consumers because of their cheaper premiums, but when illness hits, they may no longer look like such a good deal.'  Himmelstein and his colleagues found in other studies of medical bankruptcies that those most likely to file for court protection were middle-class families with health insurance.'  But the out-of-pocket expenses that resulted from their illness were too onerous to pay.'  Consider what might happen to a 56-year-old person in Boston who bought the least expensive individual coverage available.'  The policy carries a premium of $5,616, a deductible of $2000 and covers only 80 percent of the next $15,000 of covered medical expenses.'  The policyholder will have to pay 100 percent of those expenses not covered.'  Of course, you might not know which ones are not covered until you get sick.'  So it's hardly possible to plan in advance.

Furthermore, it's not uncommon for really sick people to lose their jobs or for someone to get sick after a job loss.' '  That makes it hard, if not impossible, to pay for medical debt resulting from high coinsurance, high deductibles, and skimpy benefits.'  Neither the Massachusetts law nor the federal law changed that.

More Blog Posts by Trudy Lieberman

author bio

Trudy Lieberman, a journalist for more than 40 years, is an adjunct associate professor of public health at Hunter College in New York City. She had a long career at Consumer Reports specializing in insurance, health care, health care financing and long-term care. She is a longtime contributor to the Columbia Journalism Review and blogs for its website, CJR.org, about media coverage of health care, Social Security and retirement. As a William Ziff Fellow at the Center for Advancing Health, she contributes regularly to the Prepared Patient Blog. Follow her on twitter @Trudy_Lieberman.


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Bankruptcy Top Stories Tomorrow » Blog Archive » Prepared Patient Forum: Will Medical Bankruptcy Be a Ghost of the … says
March 15, 2011 at 5:34 PM

[...] Gemma V. Reyes, Attorney at Law posted about this interesting story. Here is a small section of the postThe new study examines what happened in Massachusetts after the state enacted its own health reform law in 2006, the model for the federal legislation. The researchers concluded that decreasing the number of people without insurance does not necessarily … The research team looked at bankruptcy filings in the Bay State and found that between 2007 and 2009, the number of bankruptcies due to medical expenses increased by more than one-third, from about 7500 to about 10000. … [...]

Jim Jaffe says
March 16, 2011 at 3:39 PM

guess the questions here are (a) whether medical bankruptcy should be eliminated and (b) if so, how. Not confident what the answer to the first question is, but have an easy proposal for the second. Insofar as bankrutpcy is a legal procedure that largely absolves people of their debts, we could set up a system where those who medical bills exceeded their income or assets could simply file an affidavit and be relieved of what they owed, which would then be classified as bad debt. that would help the less sophisticated people who are hurt now because they take their medical bills seriously, unaware that virtually no one pays 100 cents on the billed dollar. Personally I think such an option would create a bit of moral hazard where people wouldn't save for a rainy day because they'd have confidence they could get a free umbrella when they needed it.