Earlier this year, a study in Health Affairs presented alarming new data regarding personal bankruptcy in the United States: 55 percent of filers in 2001 cited a medical cause for bankruptcy. In addition, study authors found that medical bankruptcies increased 23-fold in the past two decades.
Although previous analyses of bankruptcies have not attributed such high percentages of debt to medical expenses, the results of this study are indicative of the growing burden of rising health care costs, greater cost shifting from employers to employees, and the significant impact of lapses of coverage on individuals’ financial status. It also reflects a new reality affecting those who are insured—that health insurance may not fully protect individuals from soaring out-of-pocket costs.
On April 20, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, otherwise referred to as the Bankruptcy Reform Act. Although the Bankruptcy Reform Act was not developed to directly address the medical bankruptcy issue, there has been some speculation on the health policy implications of the new law.
A June 2004 Issue Brief by the Center for Studying Health System Change (HSC) concluded that the number of American families with problems paying medical bills is likely to increase. HSC’s analysis demonstrated that approximately 20 million American families—two-thirds of them with health insurance coverage—reported difficulties in paying medical bills in 2003.
Jennifer Edwards, deputy director of the Task Force on the Future of Health Insurance at The Commonwealth Fund, notes that the impact of medical debt on both individuals and the health care system, is enormous. “Bankruptcy is just the tip of the iceberg,” notes Edwards. Research by Commonwealth found that 70 percent of individuals reporting medical debt were insured when they received care that put them in debt, with nearly half using all or most of their savings.
Todd Zywicki, a law professor at George Mason University and an expert on bankruptcy, believes that the bill will have minimal impact on those individuals who face potential bankruptcy due to medical debt. For instance, the means test outlined in the law specifically subtracts payments for health expenses and health insurance premiums in its calculation of a debtor’s capacity to repay debts. However, David Himmelstein, one of the co-authors of the Health Affairs article and an associate professor of medicine at Harvard Medical School, fears that consumers will now face a higher risk of financial ruin because a greater percentage of their debt will not be discharged.
Until the law is fully promulgated, its impact will be a source of speculation. Clearly, there is concern that the legislation may exacerbate an already difficult environment for those consumers with medical debt. From a system-wide perspective, the prevailing question remains whether overall levels of uncompensated care will decline if providers are able to collect more of the bills that are owed.
