Medical bankruptcy: Fact or fiction?

This year, a whopping 1.25 million Americans are expected to file for bankruptcy. That’s about equal to the entire population of New Hampshire.

Ask the president and his allies whom to blame, and they’ll point to health care. President Obama has claimed that the cost of health care causes a
bankruptcy every 30 seconds. His healthcare overhaul attempts to curb health-related debt by limiting annual patient out-of-pocket spending, abolishing lifetime benefit limits, ending price discrimination for pre-existing conditions, and mandating that family policies cover children up through age 26.

But the alleged link between health costs and bankruptcy is about as real as the tooth fairy. The overwhelming body of research shows that medical costs play little or no role in the vast majority of U.S. personal bankruptcies.

Proponents of the health-cost-bankruptcy theory tend to cite a Harvard study that blames high medical bills for some 62 percent of American bankruptcies. The study’s authors include Elizabeth Warren, a former Obama Administration official and current Democratic candidate for Senate from Massachusetts.

Researchers who are not on Team Obama have come to different conclusions.

A study published in the journal Health Affairs reviewed Justice Department data and discovered that among Americans who cited medical debt as a
contributing factor in their bankruptcy filing, only 12 to 13 percent of their total debts were medical.

It’s difficult to conclude that bankrupt folks are awash in healthcare debt when nearly 90 percent of their obligations are unrelated to health care.

The study also reviewed Warren’s early research on medical bankruptcies and found that medical spending was a factor in no more than 17 percent of U.S. bankruptcies.

A detailed analysis by The Atlantic’s Megan McArdle further discredited the link between bankruptcy and medical expense. She found that Warren’s team
classified a filing as a medical bankruptcy whenever unpaid medical bills were resolved through bankruptcy proceedings — even if other debts were far
bigger contributors to insolvency.

But let’s take President Obama at his word — and assume that medical bankruptcies are plaguing the nation. Will ObamaCare’s increased regulation
of the healthcare marketplace help put an end to the phenomenon?

Data from countries with government-run healthcare systems suggest not.

Consider Canada. Our neighbor to the north features a government-run, single-payer healthcare system where private insurance is outlawed for
procedures covered under the law. So you’d think that Canada would have a lower rate of bankruptcy than the United States, what with one big potential
cause of bankruptcy — the cost of health care — absorbed by the government.

But according to researchers at the Fraser Institute, a nonpartisan Canadian think tank, bankruptcy rates are statistically the same on both sides of the
49th parallel. In both the United States and Canada, less than one-third of 1 percent of families file for bankruptcy each year.

Further, even with a socialized healthcare system, some Canadians go bankrupt because of medical expenses. Approximately 15 percent of bankrupt
Canadian seniors — those 55 and older — cited medical reasons, including uninsured expenses, as the main culprit for their insolvency.

Too many Americans go bankrupt each year. But contrary to the claims of ObamaCare’s proponents, the cost of health care is not to blame.

In fact, the law’s attempts to fight medical bankruptcy — by limiting patients’ responsibility for their medical expenses — will actually raise the price of coverage and therefore make insurance unaffordable for some people.

So to address a virtually nonexistent bankruptcy problem, ObamaCare will raise health costs for everyone. Some solution.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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