Posted by Todd Zywicki:
Health Problems and Bankruptcy--Are 50% of Bankruptcies Health Related?:
In Senate testimony last week, one of those [1]testifying offered the
observation, "One million men and women each year are turning to
bankruptcy in the aftermath of a serious medical problem--and
three-quarters of them have health insurance." In a [2]column in the
Washington Post last week, Professor Elizabeth Warren (who also gave
the just quoted testimony) stated, "[H]alf [of bankruptcy filers] said
that illness or medical bills drove them to bankruptcy," an assertion
that was repeated at the Hearings last week on the bankruptcy reform
legislation. Most of the Democratic Senators in attendance accepted
the assertion that 50% of bankruptcies are caused by health problems
without question (even going so far as to silence me when I raised
doubts about the credibility of that figure). It has also been widely
reported in the media.
Professor Warren writes, "With the dramatic rise in medical
bankruptcies now documented, this tired approach would be no different
than a congressional demand to close hospitals in response to a flu
epidemic." This figure was used to throw cold water on the bankruptcy
reform legislation, and it is expected that Sen. Feinstein at least
will propose an amendment.
But is it true that it is "now documented" that 50% of bankruptcies
are caused by health problems?
The conclusion is based on [3]a study in Health Affairs. Reviewing the
study, it appears that the estimate that 50% of bankruptcy filings are
precipitated by a "serious medical problem" cannot be supported based
on what that study actually examined.
First, the study comes on the heels of many studies over many decades
that find mixed evidence for the belief that a substantial number of
consumer bankruptcies are caused by health problems. Those that did
find some relationship often found a very small relationship, which
explains why Professor Warren has described it as "a dramatic rise" in
medical bankruptcies. For instance, in an earlier book, Profeswsor
Warren and co-authors wrote, "The central finding is that medical debt
is not an especiallly important burden for most debtors." In a more
recent article, it was observed that "until the 1990s . . . most
empirical studies of bankruptcy did not find illness, injury, or
medical debt to be a major cause of bankruptcy." Indeed, in the Health
Affairs article, it is stated that medical bankruptcies increased
23-fold over the past two decades. No previous credible study has ever
found anything approximating the conclusion that 50% of bankruptcies
are caused by medical problems. The appearance of such a huge anomaly
usually augurs caution in interpreting the results in light of the
massive contrary results on the other side. Such caution is warranted
here.
In fact, the "finding" in this article of a massive rise in medical
bankruptcies appears to actually be a result in the way in which
medical bankruptcies are counted, rather than an actual change in the
numbers. They draw their data from two sources. First, self-identified
bankruptcy filers who say that some medical event "caused" their
bankruptcy. Second, analysis of "objective" facts on filers bankruptcy
papers that find either (1) debtor or spouse lost at least 2 weeks of
work-related income because of illness or injury or (2) uncovered
medical bills exceeding $1,000 in 2 years before bankruptcy, or (3)
debtors who say they had to mortgage their home to pay medical bills
(which for some reason they list as an "objective" factor rather than
a self-identified factor.
Do these findings support the claim that 50% of bankruptcy filings
were caused by a "serious medical problem"?
First, consider the self-identified filers. Among the self-identified
factors that are listed as "medical" causes of bankruptcy in Exhibit 2
of the article are the following: illness or injury, birth/addition of
new family member, death in family, alcohol or drug addiction,
uncontrolled gambling. First, it is surely open to question whether
uncontrolled gambling or a death in the family really should count as
a "medical" problem. More generally, the category "illness or injury"
is very broadly defined in the study, and there is no apparent limit
on the time frame over which the illness or injury occurred, or the
severity. So classifying all of these factors as medical problems that
have "caused" bankruptcy certainly seems open to question.
Second, the "objective" measures from the debtors bankruptcy petitions
are, if anything, even more questionable. First, the authors count
anything above 2 weeks of lost work income as a "serious medical
problem." There appears to be no time frame over which this is
measured, nor does it apparently even need to be consecutive lost
work. So, for instance, if a restaurant waiter called in sick for 2
weeks or more in some indeterminate period of time prior to filing
bankruptcy, this would presumably count as a serious medical problem.
Nor does the requirement of $1,000 in unpaid medical bills within 2
years of bankruptcy seem like a very plausible measure of serious
financial problems. Again, it is pretty easy to rack up $1,000 in
unpaid medical bills over a 2 year period, especially if elective
procedures not covered by insurance are added in. Moreover, it is
well-understood that debtors who are falling into bankruptcy pick and
choose which debts they pay, paying down their mortgage or
nondichargeable debts for instance, while not paying their unsecured
debts, such as medical and credit card debt. So the fact that the
medical debts were unpaid says little, because it may reflect
strategic payment of debts prior to bankruptcy.
So the categorization of what counts as a "serious medical problem" is
quite questionable in this study. But there is a more fundamental
problem that this concern hints at--there is no control group in this
study. It is usually Statistics 101 that in order to infer causation
from a data observation, it is necessary to have a control group.
Absent a control group, it is not clear how the authors can make their
claims.
So, for instance, one would want to know how many Americans missed 2
weeks of work or had a $1,000 in medical bills and didn't file
bankruptcy. This is precisely why other previous studies have failed
to find much of a correlation between health problems and
bankruptcy--almost every family in America has a health problem, death
in the family, or gives birth every year. Most of them do not file
bankruptcy. In short, I suspect a lot of people had medical problems
comparable to those who filed bankruptcy, but did not file bankruptcy.
Of course, we will never know, because the authors have no control
group to determine whether those in bankruptcy were more prone to
illness or injury than the population at large.
Moreover, the authors do not compare the amount of medical debt they
found to other debt or obligations that bankrupt debtors had. So, for
instance, they would count as a medical bankruptcy a debtor who had
$1,001 in medical bills, even if that debtor had say $50,000 in
student loans, car loans, and other debt. It would be absurd, it seems
to me, to say that the $1,001 in medical expenses "caused" that
bankruptcy. Nonetheless, it would counted in this study, because the
authors do not control for medical debt as a percentage or in relation
to the debtors overall debt.
But the problems do not end there. For instance, the authors claim
(page W5-71) that from 1981-2001, medical bankruptcies increased
23-fold, citing a study from 1981 published in "As We Forgive Our
Debtors." I have read and reread the relevant chapter of that book,
and have been unable to determine exactly what criteria were used to
classify medical bankruptcies there, and how they compare to here. It
appears that the measure used in the earlier work was the pure
narrowest form of self-identified filers, those who stated that they
filed bankruptcy because of a health problem. In the current study, it
appears the authors ask the self-identified filers if health problems
were "a reason" for bankruptcy. I can find no evidence that the
authors there counted as medical bankruptcies any bankruptcy where the
debtor had above a specified amount of medical expenses. Even if it
were the case, there is no evidence that the $1,000 figure chosen in
the current study was adjusted for inflation over the prior study. Nor
is there any indication that the authors attempted to adjust the
medical expenses that are found in the current study for increases in
debtor's income. So again, it seems like they have just changed their
method of counting, not the actual substance.
The authors also do not provide any causal explanation for what could
have changed in the medical system to produce a 23-fold increase in
health=related bankruptcies in 20 years, and specifically note that
the percentage of those in bankruptcy who have health insurance has
changed little over that time.
In fact consider the following passage from "As We Forgive Our
Debtors":
Our central finding is that crushing medical debt is not the
widespread bankruptcy phenomenon that many have supposed. To the
extent that the typical debtors in bankrutpcy are painted as
sympathetic characters because they are struggling with
insurmountable medical debts, these data show that 'typical' is the
wrong adjective. Only a few debtors find thmselves in such extreme
circumstances.... About half of all debtors carry some medical
debt, and many carry substantial medical debt. Althought these
medical debts are not the obvious cause of the debtors'
bankruptcies they are part of their financial troubles." (p. 173).
Again, what seems to have changed is not the frequency of the
underlying problem, but simply the way the data is counted and
classified. In the earlier study, the authors recognized that
relatively small amounts of unpaid unsecured medical debt or minor
injuries were likely not the cause of bankruptcy, because this is a
part of the financial life for almost every American family. For the
debtors in the earlier study, the medical debt that was found was
relatively small in comparison to the bankrupts' other debts. In the
more recent study, the authors have simultaneously increased what
counts as a "medical problem" and classified even relatively small and
trivial medical expenses and problems as bankruptcies "caused" by
medical problems. Changing the way you count and classify the same
data is not the same thing as finding a 23-fold increase in the
underlying problem itself.
I close with an illustration that tries to put the major flaws of this
study in perspective and the policy recommendations that have been
drawn from it. Suppose that I wanted to find out how many Americans
filed bankruptcy because of tax problems. I then interviewed
bankruptcy filers and checked their financial records, and counted as
a "tax-caused bankruptcy" anyone who either (1) paid $1,000 or more in
taxes during the past two years, or (2) anyone who said that if he
didn't have to pay taxes he wouldn't have had to file bankruptcy
because he would have had more money for his other bills. I suspect
that under that criteria I would find a pretty substantial number of
"tax-caused bankruptcies." I then conclude that, as a result, we
shouldn't make people pay taxes if they believe it might make them
file bankruptcy, and that any unpaid tax obligations should get a
blanket discharge in bankruptcy (unlike current law, which makes them
largely nondischargeable).
Obviously, my hypothetical study of "tax-caused bankruptcies" would be
sheer nonsense. I would have no control group (how many other people
paid taxes and didn't file bankruptcy), I would have no information
about how large my tax payments were relative to other obligations
(mortgage, student loans, etc.), and my data would be subject to high
rates of self-reporting bias. You would object--"almost everyone pays
taxes, what is so unique about this group?" My policy proposal would
be ridiculous. In short, my hypothetical study would be properly
dismissed as junk science because it fails to use even the most basic
statistical controls and techniques.
Let me emphasize--I do not deny that many bankruptcies are caused by
health problems. This is why the bankrutpcy reform bill carves out
several specific exceptions for treatment of health expenses and
health insurance. In theory, the number may be as high as some now
say, although as noted, the overwhelming number of studies fail to
find anything approximating such a high number. But if it is true,
that conclusion cannot be based on this article that is published in
Health Affairs that got so much press last week and so much interest
in the United States Senate. The statistical classification and
methods are just too questionable to support that conclusion.
References
1. http://judiciary.senate.gov/hearing.cfm?id=1381
2. http://www.washingtonpost.com/wp-dyn/articles/A9447-2005Feb8.html
3. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w5.63
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