Thursday, February 10, 2005

Medical bankruptcy

Harvard law professor Elizabeth Warren published an op-ed in the Washington Post today with the message that "nobody's safe" from medical bankruptcy. I encourage you to read the piece in full, but here is an excerpt:

As part of a research study at Harvard University, our researchers interviewed 1,771 Americans in bankruptcy courts across the country. To our surprise, half said that illness or medical bills drove them to bankruptcy. So each year, 2 million Americans -- those who file and their dependents -- face the double disaster of illness and bankruptcy.

But the bigger surprise was that three-quarters of the medically bankrupt had health insurance.

How did illness bankrupt middle-class Americans with health insurance? For some, high co-payments, deductibles, exclusions from coverage and other loopholes left them holding the bag for thousands of dollars in out-of-pocket costs when serious illness struck. But even families with Cadillac coverage were often bankrupted by medical problems.

Too sick to work, they suddenly lost their jobs. With the jobs went most of their income and their health insurance -- a quarter of all employers cancel coverage the day you leave work because of a disabling illness; another quarter do so in less than a year. Many of the medically bankrupt qualified for some disability payments (eventually), and had the right under the COBRA law to continue their health coverage -- if they paid for it themselves. But how many families can afford a $1,000 monthly premium for coverage under COBRA, especially after the breadwinner has lost his or her job?

Often, the medical bills arrived just as the insurance and the paycheck disappeared.

The theoretical description of the two caricatures that I discussed the other day is only a framework for thinking conceptually about the relationship between the individual and the government. Professor Warren's study is so valuable because it tells us that many people are going bankrupt not because they were foolish with their savings, but because of medical problems that may be no fault of their own. What to do with this piece of information depends on one's philosophical outlook, but it helps to inform the debate about how much individuals can and should be expected to take care of themselves, and to what extent the government should provide some relief, whether in the forms of new laws or outright subsidies.

11 Comments:

Blogger bum said...

Random Comments:
The figure is closer to 1/3 of people who declare bankruptcy do it because of medical bills. Her figure is exagerrated but then again I don't know the full parameters of her study (maybe she included people who declared bankruptcy and medical bills was just one in a series of debts they had accumalated). Still, 1/3 of people declaring bankrupty is a scary and high figure.

I actually would like to read this study. Not just because I concentrated on medical sociology in college, but I am curious to see how they accumalated these debts. You assumed that the people who declared bankruptcy because of medical bills, did it because of illness but how can you be so sure? We are a vain society and I wouldn't be suprised if a significant portion of this population declared bankruptcy because they had cosmetic surgery or had medical treatment that was cosmetic surgery related (people often have to go back to the doctor - to repair the mistakes of these surgeries, to reverse the changes, or just blatantly don't follow doctors orders and have to have it redone).

I like how you left your piece open ended and did not point blame at any one group because in my opinion there are a lot of contributing factors at play (doctors, lawyers, government, and insurance companies just to name a few). I don't think a law or policy change/addition would be enough. Laws often target certain groups of people and in this situation, that won't be enough to remedy this problem.

As always, interesting piece.

2/10/2005 06:39:00 PM  
Blogger Tso said...

I think this brings up an underlying gap between perceptions of individuals and corporations. Why do we view bankruptcy for the individual as a product of something "they" did or did not do. They didn't save or maxed their credit card or didn't work hard enough, etc. However, when we view bankruptcy of corporations we often cite to how economic circumstances caused them - the downturn in the "market" or "oil prices." Health is a great way to note that individual credit, like corporate credit, is a product of situations like one's health. In similar ways we support corporations to regain their footing by donating public money (like in airlines and banks) or facility of private loans (like for Donald Trump's empire), we must find ways to change our perceptions and priorities to support individuals to regain their footing once their "markets" return.

2/10/2005 06:43:00 PM  
Blogger bum said...

Tso, i am not so sure most people differentiate between the two. Personally, I think both businesses and personal bankrupticies can happen for the same reasons - whether that be unexpected economic shortcomings, mismanagement of funds, or other some other reason. Actually, for businesses - I always assume its mismanagement of funds because even in a slow economic cycle, its a mismanagement of funds.

If an idiot like me has reached this conclusion I think most others have as well. I am really unsure where you go the perception that people think businesses go bankrupt for reasons out of their control.

2/10/2005 07:18:00 PM  
Blogger putonyourspecs said...

I think the popular distinction between personal and business bankruptcies is not whether one or the other was caused by factors beyond one's control. Rather, the distinction seems to be moral. When individuals go bankrupt, people may be inclined to think that the individuals were to blame morally. The individuals didn't save enough. They blew it on fancy cars. Whatever. But when businesses go bankrupt, it was a bad business strategy and some people are just better at business than others. The important thing seems to be that the people took a chance in calling themselves businessmen and followed the American Dream. On a small scale, bankruptcy might even seen as a good thing, a sign that the market is working because a healthy market will see corporations coming and going.

To respond to the point about cosmetic surgery, I find it hard to believe that people are going bankrupt for that reason. Why wait until the exact moment your insurance runs out before going in for a nose job? I don't know what the data looks like, but without more, I just find that notion wildly implausible.

2/10/2005 07:35:00 PM  
Blogger bum said...

Mr. Specs,
I don't see what was the difference between what you said and I said and how this is a moral issue. When someone goes bankrupt its a financial issue. For whatever reason they went bankrupt it was because they failed to put/have enough money set aside for bad times. I guess you arguing that its a moral issue proves tso to be correct and me wrong because I don't see the distinction while you do. I just see it as a failure finance wise. Whether it be for a good cause or greed they failed to plan for a major financial crisis.

To respond to your comment about cosmetic surgery - I don't see why you find it hard. In your own piece, you mention that many of the people who go bankrupt because of medical bills are those who have medical coverage. Probably the number one medical procedure (or at least in the top 5) are cosmetic surgeries. More often than not, insurance companies don't cover these surgeries and its one of the more common types! So, it doesn't matter whether you have a job or even health insurance, people get the surgery regardless (oh and just a side point - if you talk with your career counselors over at HARVARD, they will tell you more and more people get cosmetic surgery to help them land a job - more often than not these people have no insurance at all).

Also, when I say cosmetic surgery, I am talking about any procedure that a person can live without but gets it anyway, masking the true problems (i.e. emotional problems, laziness). When this is the case, insurance companies won't cover them.

2/10/2005 08:17:00 PM  
Blogger putonyourspecs said...

First, the moral distinction. I think Tso hit on something very important when he suggested that the people in general have very different perceptions of personal and business bankruptcies. I agree with you that people associate both forms of bankruptcy with a notion that the bankrupt screwed up. I was merely suggesting that people nonetheless distinguish between the two forms of bankruptcy on a moral level, with moral poverty a reason for personal bankrupcty and less so for business failures.

Second, the cosmetic surgery question. The important thing to understand about the economics of medicine, I think, is that medical services in some ways resemble other goods that people consume, and in other ways do not. When people have no money, they don't buy TVs. When people have no money, they don't get nose jobs. In that way, medical services are like TVs. But when people get cancer, they have to get medical treatment, whether or not they can afford it. In that way, medical services is not like TVs. Accordingly, I suspect that people cut back on cosmetic surgery when they can't afford it, and sometimes also cut back on necessary surgery, though not to the same extent. I might even suggest that appearance is correlated with wealth, to the extent that beauty turns on fungibles like clothing and nose shapes.

2/10/2005 08:40:00 PM  
Blogger bum said...

Hmm, nice metaphor w/ televisions and medical services but I don't think your analysis is entirely on point. Yes, people do cut back on ammenities they don't need when they do not have the money but many people who don't need them still buy them. You need to look no further than another big reason why people declare bankruptcy - debt due to credit cards. If they can get it, whether it be a cosmetic surgery, or a fancy appliance, many will find a way to get it without having the money to do so.

Again, I think you arguing that you see a distinction proves I am wrong about what most people percieve. I don't see any distinction at all. I just see it as a financial failure. I don't see the connection between this and morals. I think of morals as values and I can't make a value judgement about if a person or business declares bankrupty - just that they failed financially.

I can't even argue your point on moral poverty as I have never heard of it.

2/10/2005 09:25:00 PM  
Blogger bum said...

thought you might be interested in this: http://www.bos.frb.org/commdev/c&b/2004/spring/Bankruptcies.pdf

its from the federal reserve of boston. I found it while trying to find out some of the medical expenses. i just want to say that even though i bring up cosmetic surgeries (this includes any surgery that is not needed - (so not just nose jobs - but weight loss surgeries could be included and other procedures), i don't think its neccasarily the only cause of medical bills. my argument is that some of these bills could have been avoided.

Random comment:
even though it was a HARVARD researcher who put out that study you discuss in your post, i have to wonder about the sample. it seems wherever i look, the majority of the people who declare bankruptcy are lower class yet in the study you discuss, it says the majority of the people who declare bankruptcy due to medical bills are middle class. am i to assume lower class people don't go in for medical coverage (emergency medical coverage - which i am going to assume is where most people run into these massive bills) or are turned away? i know thats not a yes or no question but just something to ponder.

2/10/2005 09:47:00 PM  
Blogger putonyourspecs said...

That you only see bankruptcy as financial failure is an admirable restraint on your part from rushing in to judgment. I was only observing that I think many people make moral judgments about bankrupt people.

Here is the link to Professor Warren's study, which was published in Health affairs. http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.63/DC1

2/10/2005 10:28:00 PM  
Anonymous Anonymous said...

I take it you also saw in today's Post the article how blogging about how much you hate your job can be grounds for termination?

Bloggers, beware. Forewarned is forearmed...

2/11/2005 02:08:00 PM  
Blogger Steve Austin said...

Enjoyable blog. Please visit my chapter 7 bankruptcy blog.

10/02/2005 12:12:00 PM  

Post a Comment

<< Home