Increase in Personal Bankruptcies Driven by Health Costs

Washington, DCBankruptcy is something we all fear. Beyond the thought of running afoul of bankruptcy law and the need to secure the services of a personal bankruptcy lawyer, is the hit on personal pride that debt and bankruptcy is certain to deliver. The reality however is that for most, bankruptcy debt is anything but the root cause.

This fact was borne out in the American Journal of Medicine (AJM August 2009), which published the results of the first-ever, national random sample survey of bankruptcy filers. Researchers from Cambridge Hospital/Harvard Medical School, Harvard Law School and Ohio University found that illness and the resulting medical bills increasingly contribute to bankruptcies.

Their findings back up what many have long suspected: rather than credit card debt, free-wheeling spending and sheer financial irresponsibility the cost of health care is driving more and more people to bankruptcy.

For the study, researchers surveyed a random national sample of 2,314 bankruptcy files for 2007. Court records were abstracted and personal interviews were conducted with roughly half, or 1,032.

Their findings are startling. Medical bankruptcies rose by 49.6 percent between 2001—the last time this was studied to any degree—and 2007. The odds of a personal bankruptcy having a medical cause rose 2.38 fold in that time.

The study found that for 92 percent of the medically bankrupt, high medical bills contributed to their misery even though many families had medical insurance. Turns out many were under-insured, with out-of-pocket medical bills averaging $17,943 for all medically bankrupt families.

For many, a medical event triggered loss of coverage given that medical coverage is often tied to employment. When an individual is suddenly no longer employable, coverage can stop. For 25 percent of the respondents coverage stopped right away. Another 25 percent of insurers cancelled coverage within a year.

The breakdown for out-of-pcoket expenses looks like this, according to the study: $26,971 for uninsured patients; $17,749 for those with private insurance at the outset; $14,633 for those with Medicaid; $12,021 for those with Medicare; and $6,545 for those with VA/military coverage. For patients who initially had private coverage but lost it, the family's out-of-pocket expenses averaged $22,568.

"The US health care financing system is broken," Dr. David U. Himmelstein, M.D., states in the research paper, "and not only for the poor and uninsured. Middle class families frequently collapse under the strain of a health care system that treats physical wounds, but often inflicts fiscal ones."

All the more reason to explore your options with a bankruptcy lawyer, without shame.