Chairman Cohen, Ranking Member Franks and Distinguished Members;

Thank you for inviting me to testify before the Committee today on the Medical Bankruptcy Fairness Act. The Act is intended to introduce certain amendments to the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 to make the bankruptcy process easier for medical debtors. I am sure all of us would agree that a person undergoing a medical crisis needs our help more than someone who recklessly spent money on his credit card. We all have friends or family who are struggling with illness and yet have to deal with hospital and medical bills. However, the Act may be an example of good intentions that could go bad. My testimony will show how the Act could harm exactly the people we are trying to help.

The Medical Bankruptcy Fairness Act focuses on medical debtors. Given the current economic climate (with an unemployment rate of close to 10 percent), the focus on medical debtors to the exclusion of other debtors who are in bankruptcy through no fault of theirs (such as people who lose their jobs) is somewhat surprising. I think the urgency to tackle the issue of medical bankruptcies is being largely justified through the use of studies claiming that more than 60 percent of all personal bankruptcy filings are caused by medical debt. These statistics are simply not true. While bankruptcy filings have increased by 25 percent since the start of this decade, medical debts (or even credit card debts in total) have not changed significantly as a share of total debt over this period. To put things in perspective, in 2007, only 2.4 percent of families reported any medical debt. In fact, the large economics literature using standard estimation techniques to study the link between medical debts and bankruptcies has found little impact, if any, of medical debts on bankruptcy filings. So it seems obvious to me that medical debts could not be a significant factor in rising consumer bankruptcies.

The reason the Himmelstein et al. studies find such a significant impact is because of methodological problems, which I deal with in my longer, written testimony. To take a simple example, it seems to me that by including in medical bankruptcies anyone who missed weeks of work due to illness or anyone reporting any medical problem at all..the authors are overstating the problem. We have all experienced illness and taken sick days off from work, and yet the bankruptcy filing rate for the nation as a whole is less than 1 percent. So, just the fact that in their sample people reported these problems should not mean that these problems caused the bankruptcy. . . .

A summary of the testimony is available here as an Adobe Acrobat PDF.

The complete testimony is available here as an Adobe Acrobat PDF.

Aparna Mathur is a resident scholar at AEI.