Clarifying the Research on Medical Bankruptcy: A Response to Representative Kildee
At the March 10 hearing of the House Education and the Workforce subcommittee on Health, Employment, Labor, and Pensions regarding the overall topic of "Employer Health Costs," Rep. Dale Kildee (D-MI) asked me a question following my oral testimony. It related partly to cost sharing by employees in employer-sponsored health insurance plans and also to a recent study claiming that 60 percent of bankruptcies were caused by medical bills, and that seventy-five percent of these bankruptcies were filed by workers who actually had health insurance. I referenced some of the related research on that topic by my AEI colleague, Resident Scholar Aparna Mathur, which challenges the methodologies and findings in that study and other related ones. Essentially, she concludes that there are a number of significant causes of bankruptcies besides medical bills, and the "Himmelstein et al." line of studies fails to connect causes with effects.
Rep. Kildee subsequently submitted a shorter version of his question to Chairman Roe as a formal part of the hearing record and requested a written analysis of the 60-percent bankruptcy claim. Attached immediately below is our response, along with links to some of the other work in this field.
Thomas P. Miller
Problems with the Himmelstein et al. (2005 and 2009) Studies, and the Massachusetts Study
(1) Sample Selection Issues
A major shortcoming with both the Himmelstein et al. (2005 and 2009) studies is what economists dub the "sample selection issue". Himmelstein et al. (2005, 2009) conducted a survey of bankruptcy filers from public court records for the year 2001 and 2007. Based on a sample of 1000 debtors, they concluded that more than 50 percent of these had filed for bankruptcy due to a medical reason. By limiting the sample to those who had already filed for bankruptcy, the study overstated the incidence of medical debt. To account for causation, the study sample should have, at the very least, included a "control" group of medical debtors who did not file for bankruptcy. In other words, if the authors were trying to establish whether medical debts cause bankruptcy filings, the appropriate sample should have included households with and without medical debt, and households who filed or did not file for bankruptcy. In short, what the authors have established is some correlation, but not causation.
The sample also seems skewed towards debtors with high medical debt. The USTP report of bankruptcy filers, which included a much larger sample of 5203 filers, found that 90 percent of filers had medical debts less than $5000. The Himmelstein et al.(2009) study reports nearly 35 percent of filers with more than $5000 in medical debt. The authors make no attempt to reconcile or explain their findings or reveal the distribution of medical debts across filers in their sample.
(2) Regression Analysis
The study also should have allowed for the possibility that other household characteristics, such as the filer's work status, marital status, income, and other kinds of debts could have influenced the filing. As explained earlier, this could be done through the use of appropriate regression techniques applied on a suitably large, random sample of filers and non-filers. Mainstream economics literature discussing the relationship between debts and bankruptcy amply outlines these standard considerations. The study does claim to have done multivariate analysis, but the analysis is done on an even more restricted sample than the original 1032 in 2007. The sample only includes people who reported having any medical bills. Therefore, it simply assumes that medical debts are important for bankruptcy filing, rather than testing for that hypothesis in the entire sample of bankruptcy filers.
(3) Definition of Medical Bankruptcy
The 2005 study used an overly broad definition of "medical filers," which included people with any sort of addiction or uncontrolled gambling problems.
The 2009 study removed these clauses but still came up with a 62 percent number; i.e., nearly 62 percent of bankruptcy filings are due to medical reasons. The reason for the high number is puzzling, though as mentioned earlier, it is partly driven by the fact that the authors ascribe any remotely medical factor as causing the bankruptcy filing, not just medical debts. The survey results shown in Table 2 (Page 3) of the study clearly state that only 29 percent of the respondents believed that their bankruptcy was actually caused by medical bills. However, the authors chose to add to this number the percent of people who lost weeks of work due to illness, the percent of people with more than $5000 in medical bills, and the percent of people reporting any medical problems. This is clearly an overstatement of the problem. Since the respondents themselves do not believe that these other factors caused the bankruptcy filing, it is wrong to ascribe the additional bankruptcy filings to their medical costs. A related point is that the survey fails to provide information on other causes of the bankruptcy filing or how the respondents would rank different factors, as in the PSID. Therefore, it is unclear whether medical bills were the most important cause or just another cause.
This criticism was also raised by Dranove and Millenson in reference to the 2005 paper. Exhibit 2 of that paper identified people who stated that illness or injury was a cause of bankruptcy (although not necessarily the most important cause). According to Himmelstein and colleagues, 28.3 percent of respondents stated that illness or injury was a cause of bankruptcy. They also reported that medical bills contributed to the bankruptcy of 60 percent of this group. Multiplying the two figures together, Dranove and Millenson conclude that 17 percent of their sample had medical expenditure bankruptcies. Even for that 17 percent, it cannot be stated with any degree of certainty whether medical spending was the most important cause of bankruptcy.
The latest study by Himmelstein et al. suffers from the same kinds of issues as the earlier studies. The new study focuses on the impact of the Massachusetts Health Reform on medical bankruptcies. The study relies on the change in the percentage of people reporting medical bankruptcies between 2007 and 2009. Unfortunately, the 2007 survey did not especially focus on Massachusetts, so the authors are forced to rely on simply the 44 respondents who were from that state in the earlier survey. It compares that to the new 2009 survey relying on 199 people. The paper finds that the percentage of medical bankruptcies actually declined by a significant 6.4 percentage points. However, in absolute terms, the number of medical bankruptcies increased from 7,504 to 10,093. The fact that the percentage of medical bankruptcies in the population declined suggests that the growth rate of medical bankruptcies was lower than the growth rate of bankruptcies in the total population. Therefore, it is not clear from this statistic alone, whether the health reform had a positive, negative or any impact on medical bankruptcies. A proper analysis would include a sufficiently large-scale survey both before and after the Reform, which would also account for other contemporaneous changes in economic conditions in Massachusetts. Moreover, as mentioned earlier, more rigorous regression techniques would be required to establish causality. Factors that may be important at the household level as well as at the state level need to be controlled for. Further, the definition of a medical bankruptcy used in the 2009 study is subject to the same criticism as in the earlier study. To summarize, the new study provides no conclusive proof one way or the other of the effect of the Massachusetts reform on medical bankruptcies.
Aparna Mathur is a resident scholar at AEI, and Thomas P. Miller is a resident fellow at AEI
In addition, please see the following related testimony and research:
Aparna Mathur, "The Medical Bankruptcy Fairness Act", testimony before House Committee on the Judiciary, July 15, 2010, available at /files/2011/04/27/speech/100157.
Aparna Mathur, "Can Bankruptcy Reform Facilitate a Fresh Start?", testimony before Senate Subcommittee on Administrative Oversight and the Courts, October 20, 2009, available at /files/2011/04/27/speech/100089.
Aparna Mathur, "Medical Debt: Is Our Healthcare System Bankrupting Americans?", testimony before House Committee on the Judiciary, July 28, 2009, available at
Aparna Mathur and Thomas P. Miller "Maxing out on Debt Hysteria,", The American, June 20, 2007, available at http://www.american.com/archive/2007/june-0607/maxing-out-on-debt-hysteria.
Aparna Mathur, "Medical Bills and Bankruptcy Filings," AEI Working Paper 24680, July 19, 2006, available at /files/2011/04/27/files/2011/04/27/20060719_MedicalBillsAndBankruptcy.pdf
Diana Furchtgott-Roth, "The Healthcare Bankruptcy Myth," RealClearMarkets.com, July 30, 2009, available at http://www.realclearmarkets.com/articles/2009/07/30/the_medical_bankruptcy_myth_97335.html.
David Dranove and Michael Millenson, "Medical Bankruptcy: Myth vs. Fact," Health Affairs 25, no. 2 (2006): w74-283, abstract available at http://content.healthaffairs.org/content/25/2/w74.full.