The Healthcare Bankruptcy Myth

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Few figures in American life have suffered as publicly as Elizabeth Edwards, a cancer survivor whose son was killed in a car accident, the betrayed wife of presidential candidate John Edwards. Like a classic Greek heroine, she has only one flaw: she is too trusting. This week, she was duped into endorsing a flawed bankruptcy study that was transparently intended to support a single-payer health care plan.

In testimony before a subcommittee of the House Judiciary Committee, Mrs. Edwards declared, "Medical debt is, of course, a symptom of larger problems in our health care system-and the solution to medical debt and medical bankruptcy is real health reform that results in affordable, reliable health coverage and affordable health care for all Americans."

Mrs. Edwards based her testimony on a study in the American Journal of Medicine conducted by Dr. David Himmelstein and other researchers from Harvard University and Ohio University. An unassuming reader might conclude that medical debts are the major cause of personal bankruptcy in America, because the study finds that 62% of bankruptcies in 2007 were "medical."

House Judiciary Chairman John Conyers of Michigan, who should know better, said "This surge in medical bankruptcies demonstrates why health care reform is urgently needed right now. So many people's lives are uprooted, and their financial security destroyed, by unexpected medical costs."

But fewer than one percent of Americans enter bankruptcy each year. Of those, only three to five percent are plausibly bankrupt due to medical debt. These numbers present the inconvenient truth that our health system is not leading to bankruptcy in America.

The Himmelstein study paints a picture of an American middle class that even with health insurance coverage is being bankrupted by health care costs. The share of bankruptcies attributable to health care costs rose by 50%between 2001 and 2007, according to the study. The message is that rising health care costs bankrupt the insured middle class as well as the uninsured lower class.

The only problem is that the study is fatally flawed. Dr. Himmelstein is a co-founder of Physicians for a National Health Program, an organization that describes itself on its Web site as "the only national physician organization in the United States dedicated exclusively to implementing a single-payer national health program." An additional Harvard coauthor, Dr. Steffie Woolhandler, is co-founder and secretary of the organization. Even though the article states on the front page that the authors have no conflict of interest, two are self-declared activists for single-payer health care, and they have twisted the data to fit their cause.

Aparna Mathur, an American Enterprise Institute research fellow and another witness in the hearing, told me in a telephone conversation that "the Himmelstein surveys overstate the effect of medical debts on bankruptcy. Despite obvious problems with the survey methodology, it was clear to me during the testimony yesterday that the study was being used as a pretext for making the case for universal health insurance."

Dr. Himmelstein's study contradicts the economics literature on personal bankruptcies. Most reputable studies are based on the Survey of Consumer Finances, published by the Federal Reserve, which lists different types of consumer debt. Medical debt rose slightly from 5.5% of all debt in 2001 to 5.8% of all debt in 2007, according to the Fed.

A study by the Department of Justice examined more than 5,000 bankruptcy cases between 2000 and 2002. It found that 54% of bankruptcies involve no medical debt, and more than 90% have medical debt of less than $5,000. Even among the minority of bankruptcies that report medical debt, only a few have enough to cause personal bankruptcy.

Dr. Himmelstein gets different results because he uses a smaller sample and a different methodology than other studies. He started with a random sample of 5,251 bankruptcy petitions and wound up through a series of screenings only using 1,032. His survey assumes that when a medical problem is mentioned that associated medical costs are automatically associated with bankruptcy. In addition, anyone is counted as medically bankrupt if they cite illness or medical bills as a reason for bankruptcy, even if other debts, such as foreclosure and credit card debt, are a primary reason.

Furthermore, if respondents lost two weeks of work due to illness or injury they were counted as medically bankrupt, even if they had no medical debt. Hypothetically, someone could go into bankruptcy while on Medicare or Medicaid, even if they owed no medical bills at all.

Yet using Dr. Himmelstein's methodology, even single-payer health care would not solve the medical bankruptcy problem. People would still lose work time to illness, perhaps even more time than under the current system, because health care would be of lower quality. Under Britain's single-payer system, for example, people who think they might have swine flu are not being seen by doctors. Instead, they are asked to stay home and consult with the doctor over the phone.

More and more Americans understand that adding $1 trillion to government spending for health care reform won't fix our economic crisis. So proponents of single-payer health care bring out poor Elizabeth Edwards to justify their made-up numbers on medical bankruptcy. Shame on them.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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