June 22, 2009
A number of studies have shown that health care bills are the largest contributor to personal bankruptcy, but the problem may be worse than first thought. A new study published in the American Journal of Medicine has found that bankruptcies due to medical debt rose 50 percent from 2001 to 2007.
And it appears to be older consumers who are hardest hit. Elder Law of Michigan reports a significant rise in the calls for help from older adults who are desperate for relief from high debt accumulated from family illnesses.
While its a widely acknowledged critical short term problem, it appears to be particularly devastating for people approaching or in retirement. The combination of lost jobs, premature forced retirement, diminished returns on investments for retirement and the personal and economic pain of bankruptcy wipes out security in retirement and forces many from the middle class into a grueling struggle to maintain their homes and stay independent.
As recently as 1981, only eight percent of families filing for bankruptcy did so in the aftermath of a serious medical problem. By contrast, the 2001 study in five states found that illness or medical bills contributed to about half of bankruptcies.
Since then, the number of un- and underinsured Americans has grown; health costs have increased; and Congress tightened the bankruptcy laws.
According to the study, Illness or medical bills contributed to 62.1 percent of all bankruptcies in 2007. Unaffordable medical bills and income shortfalls due to illness were common; 57.1 percent of the entire sample (92 percent of the medically bankrupt) had high medical bills, proportions that did not vary by insurance status; 5.7 percent of homeowners had mortgaged their homes to pay medical bills; 40.3 percent of the entire sample had lost income due to illness; 95 percent of the lost-income debtors also had high medical bills.
Data from the detailed telephone survey yielded confirmatory results. When asked about problems that contributed very much or somewhat to their bankruptcy, 41.8 percent of interviewees specifically identified a health problem, 54.9 percent cited medical or drug costs, and 37.8 percent blamed income loss due to illness. Overall, 68.8 percent cited at least one of these medical causes. An additional 6.8 percent had recently borrowed money to pay medical bills.
Compared with other debtors, medical debtors had slightly lower incomes, educational attainment, and occupational prestige scores; more were married and fewer were employed (reflecting more disability). Medical debtors were older and had larger families. Although similar proportions were homeowners, medical debtors homes had 11 percent lower market value. The average net worth was similar for medical and nonmedical debtors.
