Hospital Costs Lead to Fewer Bankruptcies Than Thought

(Sasin Tipchai, Pixabay)

22 March 2018. An analysis of medical records and financial data show bankruptcies from costs of hospitalization occur less often than anticipated, but health care expenses overall have other long-term negative effects on personal finances. These findings, compiled by a team at Massachusetts Institute of Technology, appear in today’s issue of New England Journal of Medicine (paid subscription required).

Researchers led by MIT health economist Amy Finkelstein, with associates from University of California in Santa Cruz and Northwestern University, are tracking the impact of medical expenses on the personal finances of people in the U.S. The team is particularly interested in finding direct cause-and-effect links between major health care experiences, such as hospitalizations, and later financial outcomes. In the case of bankruptcies, much of the earlier data are from self-reported experiences where people filing for bankruptcy cite medical costs, with estimates as high as 60 percent of bankruptcies attributed to health care expenses.

Finkelstein and colleagues took a different approach, analyzing hundreds of thousands of medical and financial records of individuals that document health care experiences and later impacts on their finances. One source of data was the bi-annual Health and Retirement Study conducted since 1990 by University of Michigan, with a panel of some 20,000 individuals. In this project, the team tracked participants with insurance, age 50 to 59, as well as older individuals admitted to hospitals regardless of their insurance status. The researchers also gathered credit reports from California of adults over the age of 25, both with and without health insurance.

The team found in some cases bankruptcies could be traced directly to hospitalization costs, but those cases accounted for about 4 percent of total bankruptcies. One of the reasons for the lower than expected rate was the presence of Medicare to cover most hospital expenses for people age 65 and older. For working people however, particularly those without health insurance, going to the hospital has a much larger impact. Uninsured patients, for example, have 20 times the unpaid medical expenses of people with health insurance.

But people with insurance still face other negative consequences from hospitalization. “We suspect what’s driving the [level of] bankruptcy we find,” says Finkelstein in a university statement, “is the fact that some people lose their job because of adverse health, and in turn that causes them to go bankrupt. That’s just not going to [apply to] the elderly, because they’re not working, so they don’t have the labor market risk from poor health.”

These and other negative consequences of health care costs are detailed in another paper from the same data set published in February in American Economic Review. In that paper, the team documents how working non-elderly adults, even with health insurance, face increases in out-of-pocket health care costs and unpaid medical bills, as well as reduced earnings, access to credit, and consumer borrowing. Among the uninsured, the problems are magnified, including more bankruptcies.

Finkelstein urges policy makers to look at these larger economic consequences, not just bankruptcies. “Focusing on bankruptcy,” she notes “might lead you to think about bankruptcy protection reform, while that may or may not be useful in its own right, if you’re interested in the economic consequences of poor health, you’re missing a main issue and potential policy responses: thinking about how we might want to structure sick pay and disability insurance.”

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