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The Truth about Medical Debt and Bankruptcy

Posted by Tiffany Sanders, J.D.


Earlier this year, a study published in the New England Journal of Medicine concluded that medical debt played a less significant role in consumer bankruptcy than previous studies had suggested. Although the study involved very different parameters, many commentators and news outlets were quick to announce that the problem wasn’t nearly as serious as we’d been led to believe.

The Study Measured Bankruptcy Caused by Hospitalization, Not Medical Debt

The study doesn’t necessarily support any general conclusion about the impact of medical problems and medical debt on bankruptcy, because of the narrowly-drawn sample. Researchers considered only people between the ages of 25 and 64 who were hospitalized during a specific four-year period, but had not been hospitalized during the previous three years.

In other words, researchers excluded:

  • People with expensive, limiting medical conditions who did not require hospitalization
  • People whose medical conditions require repetitive hospitalizations
  • Senior citizens, who may be least able to absorb the costs of a serious medical crisis
  • People whose minor children were hospitalized, or otherwise required expensive medical care

In addition, the study focused on California–a state where a lower-than-average percent of the population has medial debt in collections. The highest levels of medical debt in collections are concentrated in the southern and south-eastern part of the country. And, researchers followed the subjects’ credit histories for only 4-8 years post-hospitalization.

In short, the study failed to account for a significant percentage of Americans affected by medical debt. Researchers dismiss this fact by pointing out that 63% of those with the largest amount of medical debt have been hospitalized. Of course, that means 37% have not. And, the impact of medical debt depends on a variety of factors, including economic status and ability to return to work after a medical crisis. Thus, those most affected by medical bills aren’t always those with the highest level of medical debt.

4% of 790,830 Bankruptcy Filers is a Lot

It’s clear that significant populations impacted by medical debt were excluded from the study, but let’s ignore that for a moment. If the study did accurately determine the percentage of bankruptcies triggered by medical debt, the news isn’t as great as news reports would have us believe.

Assume that researchers correctly concluded that only 4% of consumer bankruptcy cases are triggered by hospitalization. That means that in the fiscal year ending in September of 2017, 31,633 Americans were forced into bankruptcy as a result of having been hospitalized.

If we accept all of the researchers’ methods and conclusions, the best case scenario  is that an average of more than 2,600 Americans file bankruptcy every month because of medical issues.

That doesn’t really sound like good news.



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Posted on April 27th, 2018

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