How Big a Problem Are Medical Bankruptcies?

Healthcare financing is a national macroeconomic problem. We see this through the lens of our last major reform: Obamacare.

Obamacare did a ton of different things, but it was heavily marketed based on emotional scare stories: people doing without care because of pre-existing conditions, and people declaring bankruptcy due to medical bills.

Unfortunately, one doesn’t need a license to practice economics. So there was a lot of economics done by non-economists. Sometimes that isn’t high quality work.

We’ve now got some harder evidence indicating that some of the earlier research was shoddy. Do award points for getting the issue on the radar screen (but back off the conclusion as needed).

The big one was published in The American Journal of Medicine. This sounds impressive, but obviously it’s not where I’d go looking for solid economics. And, unfortunately, it’s not that solid for medicine either: it’s ranked 118th in one list of medical journals. But, it said the right thing at the right time, and one of its authors is now in the Senate in part because of her research. And what it said was that a big chunk of bankruptcies were the result of medical bills.

Not so, but it took a while to do the research properly. The original paper looked at bankruptcy filings and counted up the proportion in which there were medical bills. They came up with roughly 50%. However, the authors were 2 doctors, a sociologist, and an attorney. This does not make their work wrong. But perhaps we should have been more incredulous about letting it strongly influence public policy.

The problem with this is that it does not take into account the order or motivation of the purchases. If you exhaust your savings on medical bills, that’s obviously a medical bankruptcy. But if you spend your savings on a luxury home, then have a health problem, and file bankruptcy because you can’t pay your bills … it really isn’t related strongly to your health problems. Especially if we have bankruptcy laws that allow you to keep a house that you’re not making payments on.

So now we have new research in the New England Journal of Medicine — the top medical journal — with an absolutely top notch economist (Amy Finkelstein) as an author.And the new number they get is 4% of bankruptcies appear to be the result of medical bills.

Should medical bankruptcies be reduced to zero? Possibly. Is that the same thing as saying that medical bankruptcies are 12 times as common as they are? Hardly. And it’s distinctly possible that we’re spending a lot of money on what is not a primary problem with our healthcare system.