Published on Thursday, April 27, 2000 in the National Post (Canada)
Medical Bills Main Culprit In Bankruptcies Americans are 'one illness away' from financial collapse
by Araminta Wordsworth
Ruinous health-care costs, not profligate spending, are the leading cause of personal bankruptcy among Americans, a new study has found.
"The American middle class is solid and secure and prosperous -- we are unlike anything ever known in history -- yet American families live just one illness or accident away from complete financial collapse," one of the study authors, Elizabeth Warren, said yesterday.
About 500,000 people sought bankruptcy protection in the United States last year because of the crushing burden of medical expenses, says the study, to be published next month in Norton's Bankruptcy Adviser, a specialty periodical for lawyers.
The number equals about half the one million Americans who filed for bankruptcy protection last year.
Prof. Warren, a professor of law at Harvard Law School, said the results are a direct consequence of the U.S. health system, which requires each family to deal individually with its health problems and pay the price.
The survey, carried out with Teresa Sullivan of the University of Texas and researcher Melissa Jacoby, looked at bankruptcies in eight federal judicial districts across the United States, from California to Pennsylvania.
Its findings are published as the U.S. Congress is considering legislation that would make it harder to sweep away credit card and other debts by seeking the shelter of bankruptcy.
Prof. Warren has studied bankruptcy for 20 years and was an advisor to the National Bankruptcy Review Commission, which was set up by Congress in the mid-1990s to consider bankruptcy reform.
She said her research painted a very different picture from the image presented by the credit card companies of lavish spenders trying to escape the consequences of their debts.
Although joblessness remained the main cause of bankruptcy, she pointed out the "echo" effect in that "when people lose their jobs, they also lose their health insurance. The combination creates a blow that families cannot recover from without bankruptcy."
The implications are that if such families are not allowed to wipe out their debts in bankruptcy, some will lose their homes and many will face collection agencies for the rest of their lives.
Seniors, women and families headed by single women are the groups hardest hit by medical expenses. Lack of medical insurance did not appear to be a significant factor, although more than 40 million Americans have no medical insurance at all.
More often the problem is "under-insurance" -- families have some insurance, but not enough to handle a major illness, or the financial fallout caused by one.
Those filing for bankruptcy were a cross-section of middle-class America, dentists, computer programmers, school teachers, account ants.
In addition, Americans are paying for the amazing progress in medicine, which has given them the illusion that almost anything is possible, said Prof. Warren.
"It was very unlikely 30 years ago that an ordinary family could run up a half-million dollar medical bill, yet today that can happen in a matter of weeks in a major medical centre," she said.
"We can do extraordinary things -- we can save tiny little babies born with defective hearts or older people who can live many more productive years -- but the price is more than middle-class families can afford."
William Binzel, a spokesman for MasterCard International Inc., said the study's finding agree with others he has seen.
People often declare bankruptcy as the result of an economic upheaval, he said.
But this did not diminish the need for legislation making it tougher for those who can afford to repay their debts -- including medical bills as well as credit card balances -- to avoid such payments.
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