Your Money or Your Life
Until twenty-five years ago, filing for bankruptcy because of debts from a medical problem was virtually unheard of. In 1981, University of Texas law professors conducting bankruptcy research noticed that a handful of the debtors they were studying could never quite pay off their medical bills, but while these bills certainly didn't help, they weren't forcing people into bankruptcy.
Today, by contrast, medical-related debt is the second leading cause of personal bankruptcies, topped only by job loss. Edward Janger, a professor at Brooklyn Law School, gives two reasons for the change: First, there's been a dramatic rise in healthcare costs. In 2002 Americans paid an average of $5,440 in medical expenditures, up $419 from the previous year. A September 2004 study by Families USA found that 14.3 million Americans now hemorrhage more than a quarter of their earnings into healthcare costs.
Second, the past fifteen years have seen a tremendous spike in the number of Americans who either don't have health insurance or have such skeletal coverage they might as well have none--there are currently some 45 million uninsured Americans, a jump of 10 million since 1990.
"What you're seeing in the bankruptcy numbers is a function of the fact that we have a very thin social safety net in this country in terms of health care," Janger says.
The Health Affairs study, which looked specifically at a cross section of 1,771 bankruptcies filed in 2001, concluded that the average medical debtor was a 41-year-old homeowning woman, with children and at least some education. The study also found that a majority of middle-class debtors had health insurance both when they first grew sick and at the actual time they filed, another surprise. Insurance alone, it turns out, doesn't prevent medical bankruptcy, because it is often too porous to provide a real buffer against the financial burden of a serious illness.
"A lot of people were bankrupted because of co-payments, deductibles or uncovered services, which added up to thousands of dollars in bills," says Steffie Woolhandler.
The story of Judy and Phil Specht shows how quickly livelihoods and bank accounts can collapse in the shadow of an illness, even when people initially have health insurance. It also demonstrates how medical problems, when coupled with job loss, can be particularly devastating--many debtors grappled with medical debt and income loss simultaneously, according to the Health Affairs study.