by In his paper, “Medical Debt as a Cause of Consumer Bankruptcy,” Daniel A. Austin reports on the results of a study suggesting that “medical bills are the single largest causal factor in consumer bankruptcy—but not to the degree found in the study cited by President Obama.”
In declaring that medical debts cause bankruptcy to be filed every thirty seconds, President Obama relied on a 2009 study that indicated that 62.1% of all bankruptcies have a medical cause. (David U. Himmelstein, Deborah Thorne, Elizabeth Warren & Steffie Woolhandler, Medical Bankruptcy in the United States, 2007: Results of a National Study, 122 AM. J.MED. 8 (Aug. 2009), http://www.amjmed.com/article/S0002-9343(09)00404-5/pdf). Challenging the validity of this study, Mr. Austin notes that it was based on debtor telephone interviews taking place years after the fact and without the benefit of records or documents. Other researchers have countered the Himmelstein findings as well. For instance, a Department of Justice study concluded that 54% of debtors had no medical debt, although that figure has itself been challenged as failing to consider medical causes such as those which are camouflaged in bankruptcy schedules as credit card debt.
In his study Mr. Austin attempted to address the weaknesses in prior studies. He drew from two sources of information: 1) Schedules from 30 chapter 7 cases and 20 chapter 13 cases filed in each of 10 bankruptcy jurisdictions; and 2) the results of a national survey answered by 446 bankruptcy debtors.
With respect to the information gleaned from bankruptcy filings, Mr. Austin took into consideration the fact that the Schedules may include debt that is not clearly identified as medical. He therefore determined the nature of the debt by whether the names in Schedule F, indicated medical service, equipment, physical, medical practice group, hospital, etc. He also looked at whether a credit card debt was with a medical credit card issuer or was in the hands of a collection agency known to represent medical claims. Additionally, to capture debt that was indistinguishable from other household debt, Mr. Austin relied on a study performed by Amy Traub and Catherine Ruetschiln, in which they found that approximately 23% of all credit card charges are for medical expenses. He thus multiplied total credit card debt by .23 and added that amount to the total medical expenses. Mr. Austin concluded that medical expenses were the primary causal factor in bankruptcy where the schedules showed medical debt as either “50% of the debtor’s annual income or 50% the debtor’s total unsecured debt.”
The national survey was one page long and consisted of the question, “what caused you to file bankruptcy?” followed by six reasons including “loss of job,” “medical bills,” “divorce or marital problems,” “accident or illness to me or a family member,” “too much spending,” and “reason not listed here.” He determined that medical expenses were the primary causal factor when the debtor subjectively identify it as such.
He excluded certain considerations from his calculations which were unquantifiable; such as debts left unpaid because medical bills were given priority, home equity loans taken out to pay medical debts, and loss of income due to illness or accident.
The results of the survey showed that 26% of responders “somewhat” or “strongly” agreed that medical debt was the cause of their filing (21% “strongly” agreed). The results of the analysis of bankruptcy schedules showed that medical debt greater than 50% of half the overall unsecured debt or annual income was present in 18% of the filings.