• News Flash! Medical bankruptcies haven’t gone away.

    I am always amused by how some people will demean researchers and their methods when they don’t like the results, but tout them when they do. The last time a major paper was published on medical bankruptcies, it blamed a crappy health care system. A number of people, wanting to defend the status quo, disputed the results. Now another paper is showing that in Massachusetts, medical bankruptcies continue, even after that state passed its health care reform. It’s amusing to watch many of those same people now support those findings in proclaiming that the PPACA (sorta similar to Massachusetts reform) will fail to end bankruptcies.

    Not everyone in inconsistent. Megan McArdle has been steadily skeptical of the methods. I understand many of her concerns, but don’t think they necessarily invalidate the findings. After all, is it that hard to believe that medical costs lead to bankruptcies? To her credit, though, Megan did acknowledge that even though she did have issues with the methods, it’s not an unbelievable result.

    Austin summarized the findings from a newspaper article. That’s not what I want to focus on. I want to focus on the fact that some are pushing the results as an example of what to expect under the PPACA.

    The study contained this paragraph:

    For example, under Massachusetts’ reform, the least expensive individual coverage available to a 56-year-old Bostonian carries a premium of $5256 and a deductible of $2000, and covers only 80% of the next $15,000 in costs for covered services. Thus, an insured couple with medical problems and an income greater than $44,000 (ie, >300% of poverty, the eligibility threshold for insurance subsidies) might pay $20,512 in annual medical expenses, a figure that far exceeds the financial capacities of the average American family. Uncovered services, such as physical therapy, drugs, or home care, might push out-of-pocket costs even higher.

    That’s really bad.  $20,512 in expenses for a couple making $44,000 is huge, almost half of income. It’s no surprise at all that some people go bankrupt.  But would this occur under PPACA?

    Well, if income is just above 300% of the FPL, then premiums can’t go above 9.5% of income, or $4180.  Out of pocket costs are capped at two-thirds of the max ($11,900) for a total of $7933. That means, in a bad year, the couple could be on the hook for just over $12,000.

    Don’t get me wrong; that’s a lot of money. And it illustrates that for all the good the PPACA might do, it’s still going to leave some people exposed in terms of costs.  That’s more than 25% of income in medical expenses. But it’s still better – significantly better – that what’s going on in Massachusetts right now.

    It’s important for us all to stick to facts. Medical bankruptcies appear to be down in Massachusetts, but still far too common. The PPACA will not eliminate medical bankruptcies, but it will likely do more to reduce them than Massachusetts reform has. And if our goal is to protect people from financial devastation due to illnesses, we still have a lot of work to do.


    • That’s really bad. $20,512 in expenses for a couple making $44,000 is huge, almost half of income. It’s no surprise at all that some people go bankrupt.

      I think that this is not the problem, the medical provider needs to make a payment plan. They may not now because this is not the norm (a payment plan was offered to me each time I had a huge out of pocket medical bill, one was $10,000 and one was $30,000).

      It would be a difficult transition but if people typically had very high deductible plans all parties could adjust, over maybe 10 to 15 years. Some adjustments that might happen:

      1. People would learn to spend less on other things and save more for the inevitable medical bills.
      2. Hospitals would team with banks or some other institution to make it so they can collect the money while the patient can pay over time. There is not all that much difference between paying ahead of time with low deductible insurance and paying after with high deductible insurance.
      3. More medical charity might become available.
      4. People might shop for price more. (In my ideal plan, outlined on my blog, the lower earners usually less qualified to shop for price would have the lower deductibles. )

      Keep in mind that the event would lower the person’s taxes. The big question is how much of a person’s own money should they be forced to spend before the state starts to pay. I think that bankruptcy is mostly do to an inability to work after a medical incident and bankruptcy is not the end of the world. People can get in their feet again after it.

      Finally we expect people who earn $23,488 to live on that why do we think that it is unreasonable for a person who makes $44,000 to live in $23,488 for one year? I am speaking out of ignorance here but perhaps programs like food stamps to not deduct medical bills from income when deciding eligibility if the do not perhaps they should.

    • I know I’m flogging a dead horse, but this post just calls out for it:

      “Medical bankruptcies” in Canada: close to 0. (It might actually be 0, but I’m hedging my bet.)

      As for “high taxes” my 2009 income tax bill, even as a high income single person with no dependants, is almost exactly half the $20,512 mentioned in the article.

    • Ken, it is absurdly false to say medical bankruptcies in Canada are close to zero. Medical bankruptcies as defined in this study include bankruptcy when an injury or illness causes you to miss work, which still happens even in a country with single payer. Also, nearly 30% of health spending in Canada is not publicly funded, so people do have out of pocket costs for health care.

    • I guess I’m not following the math in that article. A premium of $5256 plus deductible of $2000 plus 20% coinsurance of the first $15,000 ($3000) is $10,256. Arguably still a lot, but it’s the worst case scenario and is only half of what the article claims and actually less than Aaron’s PPACA example. Am I missing something?

    • My bad, I missed that the example was couple who each paid that premium and each incurred at least $17,000 of expenses.

    • To what extent were the bankruptcies caused by medical expenses (hospital and doctor bills, etc.) and how much a consequence of loss of time from work due to illness or loss of job due to illness?

    • Wally R, that is exactly the question critics of the study have asked. The study authors call it a medical bankruptcy either way. Going bankrupt because you were uninsured and had 100K in medical bills is very different from going bankrupt because you had insurance but you couldn’t work for 6 months while you underwent chemo, yet the two situations are treated the same here. Instances of the former would be a good argument for health reform, the latter would not.

    • Seems to me that I’d heard there are countries where a substantial illness automatically starts a disability income insurance look-alike? A sort of governmental AFLAC.

    • The limit on out-of-pocket spending under PPACA doesn’t apply to non-covered services, which may be anything from out-of-network care to physical therapy to medications. This can add up to many thousands of dollars for medically necessary care and doesn’t apply towards the out-of-pocket cap.

      Thus the promise of an out-of-pocket cap on medical bills under PPACA is as much of an illusion as it is under current private insurance rules – as many bankrupted families with insurance – in Massachusetts and elsewhere – have already learned.