Half of Bankruptcies Due to Medical Bills, Harvard Study Says

Feb. 2, 2005 (Bloomberg) --

Half of U.S. bankruptcy filers say that out-of-pocket medical expenses led to their financial hardship -- and most of the people had health insurance, according to a Harvard University study.

For the study, researchers surveyed 1,771 filers in five states, and as many as 54.5 percent cited medical expenses as a reason for filing. In addition, the study showed about a 30-fold increase in medical expense-related bankruptcies since 1981.

Researchers interviewed 931 of the filers to glean more financial, insurance and medical information. They also viewed financial data from public court records and calculated out-of- pocket expenses, which didn't include insurance premiums.

``Cancer was the most expensive diagnosis, with average out- of-pocket expenses of $35,000,'' said Steffie Woolhandler, a professor at Harvard Medical School and an author of the study. Death caused by any disease totaled $17,283 on average, followed by neurological diseases at $15,560 and mental disorders at $15,478. Insurance premium payments were not included in out-of- pocket expenses.

Interviews revealed that in the two years prior to their filing in 2001, 40.3 percent of the debtors had lost telephone service, 19.4 percent went without food, more than half didn't see doctors and dentists when needed and 43 percent didn't fill prescriptions.

Insurance Coverage

About 75 percent of filers bankrupted by medical expenses were covered by health insurance and earned, on average, $25,000 during the year prior to the filing, according to Elizabeth Warren, a Harvard Law School professor and a co-author of the study, who said the salaries were low because many had periods of unemployment, some due to illness.

``This means that tens of millions of people who have done everything they can to protect themselves are at risk for financial catastrophe if they have a serious medical problem,'' Warren said, adding that it will become more difficult for people to file for bankruptcy if Iowa Senator Chuck Grassley's proposed bankruptcy reform bill passes in Congress.

``Senator Grassley has reintroduced the bill that is widely known as the credit industry `wish list.' It makes no distinction between people who file for bankruptcy after melting down credit cards at the mall and people who have been severely ill and run up debts because they were seriously ill,'' Warren said.

A spokeswoman for Grassley, a Republican, said the bankruptcy reform bill doesn't force people to pay medical debt if they can't. ``The bottom line is that if someone can't pay their health care bills, Senator Grassley's bill does not force them to,'' Beth Pellett said.

Senator Edward Kennedy, Democrat of Massachusetts, said the health-care system is creating ``tragic burdens'' for families. ``The new study is powerful evidence of the need for a new direction in health care. The problem has undoubtedly grown much worse in three years since the study was conducted,'' he said.

The Robert Wood Johnson Foundation provided funding for the study. The study took two years and involved bankruptcy records from California, Illinois, Pennsylvania, Tennessee and Texas.

To contact the reporter on this story:
Dianne Finch in Boston at [email protected].

To contact the editor responsible for this story:
Glenn Holdcraft at [email protected]
Last Updated: February 2, 2005 00:18 EST