Rising healthcare costs have been a critical issue at the heart of a system that has led to thousands of individuals exhausting their savings due to the onset of a major illness. The sad reality is that a majority of bankruptcies filed each year have a medical cause (62.1% in 2007). A broad study conducted by Harvard Medical School indicated that this was an issue that began to seriously manifest itself between 2001 and 2007, as the number of medical bankruptcies rose by 50%. It’s interesting to note that around the same time per-capita healthcare costs also rose substantially, as chronic conditions that are expensive to treat such as diabetes, heart disease, and hypertension began to increasingly present themselves in the U.S. population.
Contrary to what many would believe, the majority of people who were forced to declare bankruptcy actually possessed some medical coverage, but in fact, they were underinsured. Close to 75% had carried some form of health insurance two years prior to the bankruptcy filing. In many cases these individuals were dropped from an employer provided plan upon being diagnosed with a chronic or major illness, but were unable to qualify for either Medicaid or Medicare. Out-of-pocket medical expenses for those who lost coverage averaged $22,568, reflecting the presence of a costly disease.
A similar study conducted by the Northwestern University Economics Department examined the effect of chronic or major illness on individual assets in greater detail. A key difference between the two studies was that this one contrasted the effect on those who were uninsured with fully insured individuals. Not surprisingly the amount of asset loss was much higher in the uninsured group. It was found that those without insurance suffered a 30 to 50 percent greater reduction of assets.
The rise in the number of medical bankruptcies over time appears to be partially influenced by the trends in the expansion of state Medicaid programs in the mid-to-late nineties. In 1997, all states increased the threshold for children’s Medicaid coverage to 133% of the Federal Poverty Line, and some states such as New Jersey (350% of FPL) chose to expand coverage even further. A study published in the Journal of Economics examined the link between states Medicaid coverage threshold and the number of bankruptcies. The states with no increase beyond the 133% level saw a rise in bankruptcies from 14,421 in 1992, up to 31,205 in 2004. This represented a large percentage increase (46%) when compared with those states that used a threshold beyond 133%, (52,650 in 1992, increasing to 53,478 in 2004). These statistics are important because they highlight the importance of public programs such as Medicaid in a family being able to weather the financial storm brought on by an unexpected illness. It’s clear that in many of the states that don’t have high FPL thresholds, many people are caught in a limbo between being underinsured, carrying large amounts of medical debt, and at the same having incomes that may be low but don’t allow them to qualify for Medicaid.
In an attempt to respond to the increasing problems presented by medical bankruptcy, two congressional bills were introduced in 2008, and again in 2009. House bill 5138 and Senate bill 1624, known collectively as the “Medical Bankruptcy Fairness Act,” was drafted by Rep. Carol Shea-Porter with the goal of expanding features of bankruptcy protection to those individuals classified as “medically distressed debtors. “ Essentially this would have allowed people who had accumulated medical debts amounting to over 25% of their prior year income to be relieved from their remaining re-payment obligation, while also retaining possession of primary assets such homes and cars, a critical protection not included in normal chapter 7 bankruptcy filings. While both bills would have undoubtedly had enormous value for thousands of medical debtors, they were unable to make it out of committee and won’t be enacted into law anytime soon. Until a new bill is introduced and actually voted upon many of the individuals faced with a unmanageable amount of medical debt will ultimately be forced to choose between giving up the assets they own, whether through bank seizure or as a requirement for bankruptcy protection.
Cook, K., Dranove, D., & Sfekas, A. (2010). Does Major Illness Cause Financial Catastrophe? Northwestern University, Department of Economics. Evanston: Northwestern University.
Gross, T., & Notowidigdo, M. J. (2011). Health insuracne and the consumer bankruptcy decision: Evidence from expansions of Medicaid. Journal of Public Economics , 767-778.
Himmelstein, D. U., Thorne, D., Warren, E., & Woolhandler, S. (2009). Medical Bankruptcy in the United States, 2007: Results of a National Study. The American Journal of Medicine .
Shea-Porter, C. (2008, January 28). H.R. 5138 Medical Bankruptcy Fairness Act of 2008. Retrieved February 3, 2012, from opencongress.org: http://www.opencongress.org/bill/110-h5138/text
Whitehouse, S. (2009, August 6). Text of S: 1624 [111th]: Medical Bankruptcy Fairness Act of 2009. Retrieved February 3, 2012, from Govtrack.us: http://www.govtrack.us/congress/billtext.xpd?bill=s111-1624
No comments:
Post a Comment