Half of Bankruptcies due to Medical Bills

"This is barbaric. My instructions to my wife are to not authorize any medical care for me that is not covered by insurance."

Instructions I'm guessing she will studiously disobey, if, god forbid, the time came to make such a decision. Part of the reason there are so many bankruptcies is quite simply because the prospect of permanent debt and financial trouble seems unfortunately a small price to pay for giving your spouse parents or children a chance to live. It's barbaric that the choice need to be made. It's inconceivable to me, from a European country, that a modern 1st world country would force it's citizens to make such choices.

Don't forget the Demonocrats who voted to tighten the bankruptcy laws. The bankruptcy law should allow an acception for medical bills. Creditors can now go after estates for medical expenses.

Rudi,
You make a good point that I hope will be adjusted by the next administration.

Before you go making medical decisions like that, how about taking a look at that 50% figure. Where did it come from? When it was challenged and analyized properly , the figure becomes 17%! Harvard studied about 1700 families, that were in bankruptcy proceedings, but only 17% were doing so because of medical bill, the rest had job loss, college loans and home loans. In reading the article you cite, Ann Davis admits that they filed due to other debts. Did she lose her house because she couldn't pay medical bills, or was their financial situation already in a tailspin and the medical costs exasberated the situation?

Todd Zywicki had this post at The Volokh Conspiracy testified about the subject http://volokh.com/archives/archive_2007_07_15-2...

Lynx is probably right--your wife will disregard those instructions, if only because it's not even possible to find out what is covered on a timely basis.

My father died after a brief hospital stay a few months ago. I was amazed at how confusing the billing process was.

One thing I learned was that, in an effort to contain costs, Medicare and other insurers--not hospitals--determine what they will pay for treatment. Hospitals accept these insurance rates. But if you don't have insurance, you pay much more than what insured patients pay. Suddenly, the fact of 50 million uninsured Americans made sense to me. There is no financial incentive to cover them when seizing their assets earns more money.

This is an important story bubbling beneath the surface. Naturally, you'll hear the talking heads about plagiarism instead of this.

And I hope you have long-term care policies for you and your wife.

Everyone knows, I think, that job loss, college loans and home loans are causing tremendous problems in the current economy.

The problem though is that as medical technology advances, our ability to pay for the advances will not keep pace- and that includes our ability to pay as a society as well as our ability as individuals or family members. What makes anyone think that universal coverage will be able to handle the costs of the next generation of treatments, and the next, and the next?

Yes they are because people bought homes they couldn't afford, charged more than they could repay at the end of the month, and somehow don't realize that college loans need to be repaid.

I am sorry for your loss. I lost my mother back in April. From 2000 until 2007, her various medical conditions cost roughly $700,000. Medicare picked up the majority of the bills. Her supplemental coverage picked up the rest. My father paid roughly $900 out of pocket and that included the co-pays on the daily medications she took.

It seems to me that while the frontiers of new medical treatment are expensive that eventually yields to much lower cost: New drugs become generic, surgeries become arthroscopic, medical tourism brings more competition, DNA therapy is only in its infancy, and prevention may actually become fashionable. Almost all developed countries do a better job of managing health care costs than we do. We are very far behind the curve on this.

I think our current system is legalized extortion.

Peejz - You cite a 17% figure, but this link to a summary of the actual Harvard survey validates the 50% data. Please show a link to back up your 17% claim.

So, this is a bit long, but it's not just ranting. I have some personal experience seeing where the outrageous costs come from, and it is infuriating and ultimately depressing. I have to admit though, that one of the main problems is economic: demand is inelastic and so there is no reason to change the current system when they can just deal with inefficiencies.

My first job was as a low level data entry person for insurance records. Basically what happened was that care was given, then the procedures went to hospital billing, then hospital billing contracted out private companies (I worked for the one that did their medicaid and medicare) and sent over boxes of tens of thousands of bills. The company I worked for then retyped the bills into a system that charged the government, then the government paid my company and they reimbursed the hospital. I think I remember hearing that my single branch (which handled like 30% of the workload of two hospitals) made $10 million in revenue a year just retyping and filing things that were already in a computer at one point. So Obama and Clinton are perfectly right that there are tens of billions that can be saved by changing the current system.

Of course in my current job I see that there is stuff that no one talks about that would save thousands of people and probably cut costs enormously. I'm in research and we study how to analyze data in order to diagnose disease and figure out underlying physiology. In the grand scheme of things, we don't know much, but there is nearly three decades of work that has matured to the point where many diseases can be diagnosed (and treatment effectiveness can be analyzed) but none of this is currently used. None! The hospital setups are so bad that they don't even record any data, and the machines that measure different things aren't compatible so there aren't even any integrated viewing displays.

The current system just has a nurse come every so often and manually write down the various values on the patient chart. This is absolutely useless because research has shown that most of the way to distinguish between people that are doing well and poorly requires long periods (sometimes up to 24 hrs). A hospital administrator is trying to get together a large group of doctors and researchers to correct this and he likened it to the stock market where people would read the ticker and write it down. So we literally have 21st century hardware, and 1940s processing of the information.

The administrator was a bit naive and gave this rousing speech about how if we work together what we could do. The rest of the meeting revolved around how the researchers have tried for at least a decade to get the large medical companies to open up their machines (or at least partner with them) but they had absolutely no interest in it. They can make so much money keeping it closed, that there is no reason for them to change anything. I said that it sounded like it'd be easier for us to raise $50 million and make everything ourselves than get the current companies to help.

So really, more money is not the problem. Greed and stupidity are the problem. (I really don't get the company's reluctance to help the researchers since they would make billions replacing the machines...I guess it is because we demand that the machines be able to be extendable which means that there would be less demand to replace them every 10 years since new things could just be added.) The only solutions I see are for a "Manhattan/Apollo Project" for medical care -- where scientists and doctors are as valuable as they were for those projects -- or a huge foundation like the Gates Foundation to set aside a few billion to develop a sleek non-profit (or smart reasonable) company to make these devices and really kick out all the old players.

Is 17% meaningfully better than 50% in these circumstances?

Most bankruptcies are a cascade of unfortunate events. We used to say, years ago, that there is not much difference whether you fall off the World Trade Center or the Empire State Building.

Rudi, I already cited one source, and here is another http://goliath.ecnext.com/coms2/gi_0199-5322776...

Why did you link to the study that I referred to as flawed? Was it supposed to suddenly get more accurate?

Paul, excluding medical illnesses, are most bankruptcies a result of unfortunate events or people making poor decisions, and not taking care of their financial situation in a timely manner? People seem to think that they can allow bills to go unpaid and nothing will happen to them. My mil was 76 and her husband 92, when they had to file for bankruptcy. She charged things behind his back, and didn't pay the bills..word of advice..don't try to screw Sears or your bank...my sister-in-law had to get them into bankruptcy court otherwise court could seize home to pay the debt, and the Aunt paid off the house loans that MIL took out behind her hubby's back..The hubby was devastated because he lived and worked wherever he could during the depression. He paid cash for everything. She violated his trust and almost took everything he worked for. She felt you and I owed her. She never said she was sorry, never accepted responsibility, thought her sister owed it to her to pay off the house loan because Auntie had money in the bank..Her way of dealing with the situation was to not answer the phone.

Peejz,
I agree that there needs to be a distinction between unfortunate circumstances and irresponsible behavior. And yet it seems to me that the former is much too large a fraction of bankruptcies and financial turmoil.

Perhaps one lesson of the Sub Prime mess is that we need tighter regulation on the extension of credit and usurious fees. Another is that Social Security needs to be protected because sometimes, through no fault of our own, our prudent investments tank.

Paul, I agree. What I see happening with this sub-prime situation is this; those that were looking for a fresh finacial start, or those with less than stellar credit will be shut out or it will be very difficult to get loans.

Peejz simplifies the situation terribly. What happens in the real world is that people take on debt they can manage and then get hit with the unexpected in the form of the debt from medical treatment. Citing what other debt they have in these circumstances is meaningless and comes from those who support the existing system for ideological reasons. After all, Free Market is all-knowing, all-powerful and inerrant. The Volokh Conspiracy would defend the current system even if the numbers of uninsured doubled. It's just their reason for existence.

Peejz - I had to dig to find the actual source of the 17% argument. I fell on the floor laughing when I found the source of their analysis, on page15 of the criticism is this statistical gem.
http://www.kellogg.northwestern.edu/research/ch...

According to HWTW, 28.3 percent of respondents stated that
illness or injury was a cause of bankruptcy. HWTW also
report that medical bills contributed to the bankruptcy of
60 percent of this group. Multiplying the two figures
together, we conclude that 17 percent of the HWTW sample
had medical expenditure bankruptcies.

Even for that 17 percent, we cannot state with any degree
of certainty whether medical expenditures were the most
15
important cause of bankruptcy. To move from causation to
magnitude, it is necessary to perform multivariate
statistical analysis on a sample of bankrupt and solvent
individuals. The dependent variable would be a bankruptcy
indicator. Predictors, in addition to those measured by
HWTW, would include economic and demographic variables such
as employment and marital status. Only in this way could we
make the kind of “all else equal” statements required to
assess how medical debt affects bankruptcy rates. HWTW fall
well short of the mark. They do not interview a control
population of solvent households. They do not collect
economic control variables.
Several published studies of bankruptcy that do use
multivariate analysis studies paint a different picture
than the one depicted by HWTW. We summarize key research
below.
Congressional Budget Office14
The Congressional Budget Office analyzed the 75 percent
increase in personal bankruptcy filings between 1994 and
1998 by reviewing the “voluminous” literature on personal
bankruptcy in a 2000 report.

Multiplying numbers together to produce the 17% figure is joke. The Harvard study showed detailed methodology for their figures. The Northwestern critics did some Jethro Bodeen ciphering to come up with 17%. They fault the Harvard study, then use an absurd calculation, with no statistical significance, this is much worse than anything the Harvard study could be accused of doing as far as methodology.

I looked at the paper and their "research" was supported by the health insurance lobby. I guess that explains the extremely personal tone it has, and the emotional overtones (what research papers start out with quotes, especially ones that have nothing to do with the topic?). Really it was just a review paper and as Rudi pointed out, the 17% figure means nothing.

Still, it looks like the 50% figure might be overstated and the bigger question is overall debt burden. Of course as Jim points out, the question is not how many people have other debt, but how many would not declare bankruptcy if they did have insurance. That Northwestern review didn't address that question.

mikkel, good posts and I agree that there are a lot of inefficiencies in the system and that greed keeps medical costs up. There should be more emphasis on preventative medicine. We'd all live longer and have a higher quality of life. And costs would be lower.

Rudi, at least 2 of the staff on the Harvard Study admitted they did it for the purpose of pushing for universal healthcare.

Had you actually taken the time to read the report, you wouldn't have been laughing, but scratching your head..73 % admit to paying $1000.00 over 2 years or $41.66 per month was the cause of bankruptcy. The position, had they not had to pay it, other bills wouldn't have fallen behind. I use the figure of 73% because only 27 % claim that unreimursed medical expenses over $1000.00 in a 2 year period. The study classifies "uncontrolled gambling," "drug addiction," "alcohol addiction," and the birth or adoption of a child as "a medical cause," regardless of whether medical bills are involved.