Setting the Record Straight about Medical Bankruptcies

Naomi Lopez
April 3, 2018

Many people mistakenly believe that prior to the Affordable Care Act (ACA), commonly known as Obamacare, medical bills were responsible for half of all personal bankruptcies. Then-President Barack Obama famously and repeatedly claimed that there was a medical bankruptcy every 30 seconds. Many continue to believe that half of all personal bankruptcies are caused by high medical bills.

But a new study published in the New England Journal of Medicine sets the record straight. Instead of the fictional 50 percent number, the number is likely closer to 4 percent.

The authors, who are health and labor economists, found that:

“Though there is compelling evidence that medical expenses do cause bankruptcies in the United States, they may cause far fewer than has been claimed. Overemphasizing such events may distract from an understanding of the true nature of health-related economic hardship.”

In an article analyzing the study and what it means, Washington Post columnist Megan McArdle writes:

“On a personal level, it means that Americans need to plan around potential illnesses by rethinking their debt load. We’d all be much less vulnerable if we kept our debt payments down to a level that would be manageable on a reduced income, instead of buying as much car and home as we can afford. Some of the savings from lower payments could be used to buy short-term and long-term disability insurance, either through our employers or a private broker. And we could put the rest into an emergency fund that would carry us through, say, a three- or six-month illness.

“On a policy level, if Americans wanted any sort of social insurance to protect the middle class from the financial effects of illness, they’d have done much better to insure incomes rather than health. That probably would have been just as controversial as Obamacare, to be fair. But at least we wouldn’t have spent hundreds of billions of dollars to fight medical bankruptcies, only to see no improvement.”

Today’s popular bankruptcy narrative is that high-cost, innovative treatments are driving patients into bankruptcy and that measures, such as price controls, are needed to protect patients. A new Goldwater Institute paper by Dr. Rafael Fonseca and several co-authors—who include doctors, cancer survivors, and an economist—points out that:

“A cancer diagnosis creates many additional financial challenges for patients and their families including time off work, missed work for caregivers, travel and meals for those who may be geographically far from specialist care, hospital and emergency room bills and co-pays, and other medical and general expenses. It is difficult to study this effect on bankruptcy across the world, particularly as not all countries have bankruptcy protection laws like those in the United States.”

The authors also point out that Canada, a country with universal healthcare, has similar medical bankruptcy rates as the U.S.

There is no doubt that most anyone would be fearful about the financial challenges of facing a serious illness. But too often, lawmakers seek policies that do little to address the underlying issues in favor of measures that not only fall woefully short of the stated goal.

Naomi Lopez is the director of healthcare policy at the Goldwater Institute