Health Woes Lead to Bankruptcy

About half of bankruptcy filings are preceded by serious illness, study finds

Middle-class Americans are only one serious illness away from bankruptcy, according to a joint study by Harvard Medical School (HMS) and Harvard Law School (HLS) researchers.

Published Wednesday in an web exclusive of the journal Health Affairs, the study found that about half of bankruptcies filed in the United States came in the aftermath of a serious health problem, and that the majority of them occurred in middle-class families.

“There are about two million Americans involved in medical bankruptcies per year,” said David U. Himmelstein, Associate Professor of Medicine at HMS and an author of the study. “Most of these middle class people had insurance policies at the outset of their illness.”

Himmelstein, who is also a primary care doctor at Cambridge Hospital, said that the results of the study were surprising and revealed a significant flaw in America’s health care system.

“It means that the health care system is broken not for just the poor, but also for the middle class,” he said. “Short of Bill Gates, almost every American is at risk for financial ruin.”

Gottlieb Professor of Law at HLS Elizabeth Warren, another author of the study, said that this study underlines the need for a comprehensive solution to the current health care crisis.

“Asking the family to stitch together pieces of coverage—it’s not working,” Warren said. “Families with insurance were out of pocket more than $13,000 in medical bills. When you combine that with lost income, these families have no chance.”

But America’s Health Insurance Plans spokeswoman Susan Pisano said that factors other than health care, such as loss of income, may contribute to bankruptcy.

“One out of every three people will have more than three months when they cannot work because of illness or injury—most people underestimate that likelihood,” she said.

She added that the study does not ignore this issue, and acknowledged that many families faced a “one-two punch: the breadwinner got sick, then the medical bills started to accrue.”

“She’s trying to say that co-pays, services that aren’t covered, and techniques that shift costs away from the insurance companies are negligible when it is in fact not negligible,” Warren said. “What we are trying to say is that having health insurance is not an absolute protection against financial collapse.”

Himmelstein said that the solution to the current health care crisis lies in providing national health insurance.

“We would cover everyone, and it would be more comprehensive than Medicare coverage—Medicare leaves seniors with very large prescription drug costs out,” he said. “Canada has a national health care plan, and they only have one twentieth of the bankruptcies that we do.”

Hours before the study was released, Sen. Chuck Grassley, R-Iowa, introduced legislation that would mean fewer families could receive bankruptcy protection.

“Congress has a response to the rising number of families filing bankruptcy in the aftermath of a health problem,” Warren said. “Their solution? Make it harder to file for bankruptcy.”

—Staff writer Risheng Xu can be reached at xu4@fas.harvard.edu.