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Majority of Bankruptcies Due to Medical Bills

This article was written by in Debt Reduction. 11 comments.

Not only are most personal bankruptcies due to medical bills beyond the ability of the consumer to pay, but most of the households declaring bankruptcy for this reason do so despite having health insurance coverage.

Researchers from Harvard Law School, Harvard Medical School, and Ohio University reported 60 percent of personal bankruptcies in the United States involved medical bills, an increase of 50 percent over the past six years. Furthermore, seventy-five percent of those bankruptcies were claimed despite having health insurance, intended to cover medical expenses and prevent unaffordable bills.

The researchers indicated that only 29 percent of those who declared bankruptcy explicitly cite medical bills as the cause, but the 60 percent figure includes households with medical bills totaling more than 10 percent of family income.

Health insurance appears to be useless when it is most needed. Twenty-five percent of insurance companies cancel coverage immediately when an individual covered suffers a disabling illness. Within a year, another twenty-five percent of insurers cancel coverage.

Even with medical coverage, here are the average bills, out of pocket, for some of the most expensive conditions:

  • Multiple sclerosis: $34,167
  • Diabetes: $26,971
  • Injuries: $25,096
  • Stroke: $23,380
  • Heart disease: $21,955

The study was funded by the Robert Wood Johnson Foundation and will appear in the August edition of the American Journal of Medicine.

Medical bills underlie 60 percent of U.S. bankruptcies: study, Reuters, June 4, 2009

Published or updated June 4, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 11 comments… read them below or add one }

avatar Chris

One of the difficulty with insurance of any kind, is no one understands it, which is why health insurance from large companies or municipalities is so valuable since you have professionals that hire consulting companies (mercer and hewitt for example) that can negotiate coverage options. I got my mom set up on a program within the state of Illinois. The main selling point, you can only be cancelled for non-payment of premium. Not cheap but until she hits 65 and can do medicare its the best option we could find for her. Personally I would love to have a health plan like France.

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avatar Ray

In Canada we take our health care system for granted, but every time i hear stories about the US health care I appreciate our system more and more.

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avatar Ron

My 13 year old daughter was diagnosed with Crohn’s disease last year and I personally spent over $10,000 in medical costs despite having what is considered very good medical coverage at work. She was in the hospital three separate times and our medical costs, paid by our insurer, totaled over $35,000. She is currently on a highly specialized treatment that costs $1,700 every eight weeks, but insurance covers 80 percent of it.

It’s been a rough stretch, but she’s finally doing better.

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avatar Laura

I had a stroke on September 20th of last year (see the caring bridge blog: caringbridge.com/visit/laurajohnson) and so far I have paid $6,000 dollars and I have $5,000 more to go. However, I would say that my employer is using an excellent health insurance provider. My entire bill (including my portion of $11,000) is close to $300,000. It is amazing how health care is so important yet so terribly expensive!

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avatar Brandon

People so misunderstand insurance and insurance companies. The article states that 25% of insurance companies cancel coverage immediately when the insured experiences a disabling illness. FALSE! Medical coverage is guaranteed renewable. Insureres cannot cancel coverage unless they stop doing business in the state altogether. Even if you have group coverage, if you get terminated, you have COBRA as an option to continue coverage. The whole system is designed around making sure that you don’t lose coverage when you experience sickness. Those who do lose coverage after experiencing a sickness are the people who choose to stop paying for the insurance at that point (or have some of these supplementary plans being sold as primary insurance that shouldn’t be). Also, insurance covers a very high % of the cost for the major illnesses. The average deductible these days is around $2000 with a total insured maximum out of pocket cost of around $4000. So, the average insured would be out of pocket $4000 for a medical episode costing $50,000. Insurance is expensive because most people in this country are not healthy. They put anything and everything into their bodies, develop diabetes and other major health problems. Insurers average about 4-8% profit. Compare this to restaurants averaging 20-30% profit or similar for retailers.

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avatar Apex

This post is unfortunately not accurate. It is disappointing that the title is a strongly misleading statement right from the start. The majority of bankruptcies are not due to medical bills.

As the author states only 29% of those declaring bankruptcy cite medical bills as the reason (and I wonder what percent of that 29% have no medical insurance, it would be very important to know that number, I suspect it’s an extremely high percentage.) The fact that 60% have medical bills that total 10% of their income is irrelevant. What if 70% have annual mortgage payments that total 30% of their income? Does that mean 70% of brankruptcies are caused by mortgages? This is just bad logic. In addition any debt that accounts for 10% of your income is hardly something that would require bankruptcy. If you make 60K and you have 6K in unpaid medical bills that does not mean you need to file bankruptcy. All that statistic means is that people who file for bankruptcy also have other bills but for most of them something else was the major expense and that caused them to get behind on all their bills, stopped paying medical bills for 3 years (that could add up to 6K in a hurry), stopped paying credit cards, mortgage, etc and finally had no choice but to file bankruptcy. But just because you have 10% of your income in unpaid medical bills does not have any relationship at all to the bankruptcy.

The idea that medical insurance companies are dropping people who have claims is not true. The author cites a 25% immediate cancellation rate and a second 25% cancellation within a year but no sources are cited for these numbers. I know multiple people who have had major health issues. I have never heard of a single person being told they were being dropped by their insurance company because of claims (or for any reason actually).

The truth is that in the USA major medical policies are guaranteed renewable. As long as you have retained constant coverage you can always get a medical policy. The only time a policy can be cancelled is if it is found out that there were material ommissions in your health history when you signed up for coverage which means you did not disclose previous conditions or risks that would have either prevented you from getting coverage or changed your cost of coverage.


While medical insurance is expensive, it’s not going to bankrupt you if you have coverage and you cannot be dropped if you get sick. As a disclaimer most policies do have a lifetime max which is usually between 1 and 5 million and if you hit that your coverage is exhausted. But you are not going to get dropped once you start having bills.

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avatar ctreit

I used to volunteer at a homeless shelter. Quite a good number of guests were homeless because of a medical problem. This is only anecdotal evidence, but I found it quite shocking. It makes no sense to me. These homeless people had been perfectly fine members of society who used to contribute to society, but they became a burden to society because of a medical complication and a lack of insurance.

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avatar Luke Landes

Let me clarify some of the points. Private insurance companies cannot (legally) drop you unless they are dropping everyone in your state, but they can:

  • Change the services they cover at any time, even after you process a claim
  • Change the doctors they cover at any time, even after you are in a relationship with your current doctors
  • Raise deductibles and copayments every year
  • Drop you if you don’t make your premium payments, even if you can’t make those payments due to medical bills.

While the companies can’t (legally) directly drop you after processing a claim, they can do many other things that will reduce their coverage or help move towards dropping you. Let’s be clear: insurance companies are profitable when as few claims are paid by the company as possible, so it’s in the companies’ best interest (in terms of the bottom line, which is what most companies care about despite their marketing) to reject claims.

As far as the statistics go, it was cited in the article that only 29 percent of people entering bankruptcy cited “medical bills” as the reason, but 60 percent of people entering bankruptcy had medical bills totaling more than 10 percent of household income. The details of this survey haven’t been published online as far as I can find, and these numbers by themselves do not tell the whole story. People can cite other troubles as the reason for claiming bankruptcy even though medical bills could be significant cause as well.

One important point to note is that 25% of the insurance companies canceled coverage immediately after claiming a disabling illness and an additional 25% canceled within a year. Regardless of the reason, many people who needed coverage the most were dropped. It is understandable for a company whose goal is not to pay claims (that is, make money) would find any possible reason to refuse to cover a person as soon as it became expensive to do so.

As a chief operating officer of an international multi-business financial firm once candidly opined to me, insurance companies are the only businesses that make money by not providing service to their customers.

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avatar Yana

I don’t like seeing people defending medical insurance companies, as though they are anything but money-grubbing exploiters of humanity. There was a time when I had excellent coverage through a group affiliation, but when I needed regular care, my premiums for me alone rose from $258.62 monthly to $895.02 monthly. I complained to the State of California Dept of Insurance, and I got an apology and a check for $1,000 from the insurer since the insurance company didn’t inform me of the rate change in a timely manner. Which wasn’t my complaint, of course.

Since insurance and medical care is so available to all, especially when they are sick, why does California have the MRMIP program? This program has been supported in part by cigarette taxes. The premiums MUST be affordable, since this is a subsidized program, right? Yes, it is pretty reasonable, for example, for a 47 year old couple to get Blue Shield HMO for $2,285.80 monthly! – http://tr.im/nATi . That was 2008, so might not be accurate today.

Flexo, I think you get it. But when I see people trying to minimize and discredit the realities (Brandon saying “FALSE!”) and Apex pointing out discrepancies and lack of sources of the numbers, I have to respond. The entire medical/insurance/pharma marketing system needs to be dismantled before it can be built into something of value and integrity. Brandon has the insurers making a tiny profit. Does anyone actually believe this?

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avatar wylerassociate

Do european citizens ever file for bankruptcy because of medical bills or because health care is nationalized it is not an issue? I’m not sure about it.

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avatar Nathan Resnick

To my knowledge it really depends on the country in Europe, if you meant the European Union and most of the countries in Western and Northern Europe I don’t believe they have bankruptcy issues from medical debt. However, I know in some parts of Europe people have a choice between private hospitals and doctors and the public option.

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