Bankruptcies caused by health problems aren’t as common as previously thought

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However, lost employment and lower earnings were connected to health problems

Medical bills can put a strain on a patient’s financial well-being, but bankruptcies due to medical bills aren’t as common as previous research suggests.

A new study finds hospitalizations are to blame for only about 4 percent of personal bankruptcies among non-elderly adults in the U.S.

Previous research yielded a commonly cited figure that 60 percent of bankruptcies have medical causes. However, researchers say previous estimates were drawn from self-reported data about health issues among those who filed for bankruptcy and did not establish that medical costs were the main cause of those bankruptcies.

Hospitalizations lead to workplace troubles

The new study tracked the credit reports of more than a half million adults over age 25 in California who had a hospitalization between 2003 and 2007 that wasn’t tied to childbirth.

Researchers found that hospitalizations did force some patients into bankruptcy in the years following their stay, but it didn’t happen as often as past research indicated. The researchers pegged the figure at 4 percent.

The new statistic takes into account multiple negative economic consequences of having medical problems, including a 20 percent drop in earnings and an 11 percent drop in employment for adults between ages 50 and 59 who had been hospitalized.

The current study “underscores the need to understand the full range of financial challenges people face due to their medical needs,” the researchers said.

"It doesn't mean there aren't really adverse economic consequences from adverse health," said co-author and MIT economist Amy Finkelstein. "It just turns out they're not [strictly] about bankruptcy. They're much more about lost employment and earnings."

Not common among the elderly

The study also found that bankruptcies caused primarily by medical problems are minimal among the elderly (those over 64). Elderly patients are more likely to have the aid of Medicare and retirement working in their favor, the researchers said.

Finkelstein and her colleagues believe health problems often lead to workplace problems, which in turn leads to bankruptcy.

"We suspect what's driving the [level of] bankruptcy we find is the fact that some people lose their job because of adverse health, and in turn that causes them to go bankrupt," Finkelstein said.

"That's just not going to [apply to] the elderly, because they're not working, so they don't have the labor market risk from poor health."

More research needed

The study authors acknowledged that the current study had limitations. It focused only on adult patients from one state who were hospitalized. Additionally, it didn’t look at other kinds of medical costs that drive people to bankruptcy (such as medical costs incurred by parents, children, or other relatives).  

"We're not going to go to the mat over the idea that [the rate of medically caused bankruptcies] is always going to be 4 percent in every context and by every measurement," Finkelstein says. Still, she added, the number of bankruptcies caused by medical problems is likely much lower than previous estimates indicate.

The full study has been published online in the New England Journal of Medicine.

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