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Study Finds Half of All Bankruptcies Tied to Illness or Injury

February 4, 2005—Nearly half of all bankruptcies in the United States are in families that experience financial distress after a serious illness or injury.

Researchers at Harvard Medical School found that the number of health-related bankruptcies increased 23-fold from 1980 to 2001, which suggests that high medical bills were a major contributor to the growth in the number of individuals seeking federal bankruptcy protection.

The number of overall bankruptcies was 3.6 times higher in 2001 than in 1980.

Most of the filings were middle-class workers who had health insurance at the onset of their medical difficulties, according to the report, which was published Feb. 2 on the Health Affairs Web site.

"The medical debtors we surveyed were demographically typical Americans who got sick," said David U. Himmelstein, associate professor of medicine at Harvard Medical School. "They differed from others filing for bankruptcy in one important respect: They were more likely to have experienced a lapse in health coverage."

While many had coverage at the onset of their illness but lost it, in other cases even continuous coverage left families with ruinous medical bills, he said in a news release.

Himmelstein and his colleagues reviewed 1,771 personal bankruptcy documents in five federal judicial districts in 2001, and conducted follow-up surveys with 931 of those debtors to determine how illness contributes to bankruptcy in America.

Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset illness. Medical debtors were 42 percent more likely than others debtors to experience lapses in coverage.

"Debtors' narratives painted a picture of families arriving at the bankruptcy courthouse emotionally and financially exhausted, hoping to stop the collection calls, save their homes, and stabilize their economic circumstances," the Harvard researchers wrote.

Some of the people interviewed expressed fear that their medical care providers would refuse to continue their care, and a few recounted actual experiences where that fear came true.

Medical and job problems often came together. One man told the researchers that he underwent lung surgery and suffered a heart attack. Both hospitalizations were covered by his employer-based insurance, but he was unable to return to his physically demanding job. While he found new employment, he was denied coverage because of his preexisting conditions, which required costly ongoing care.

Families struggling to pay medical debts they accrued while caring for their chronically ill children was another common rationale for filing bankruptcy, as was difficulty in making high copayments and deductibles.

The findings raise several health policy implications, such as deficiencies in the financial safety net for American families confronting illness, the researchers found.

"While 45 million Americans are uninsured at any point in time, many more experience spells without coverage. We found little evidence that such gaps were voluntary," they wrote.

The findings also conclude that many health insurance policies prove to be too skimpy in the face of serious illness, and that even good employment-based coverage sometimes fails to protect families.

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