Illness as a principal cause of bankruptcy: a causal comparitive review
Introduction
A survey of American families, who have filed for bankruptcy in 2001, revealed that approximately 50 percent of the debtors stated medical causes as the main reason for bankruptcy. (Himmelstein. Warren. Et Al, 2005). The expenditure of individuals whose illness led to bankruptcy averaged a high $11,854 after start of the illness. While a large percentage of them, 75.5 had insurance when illness commenced, 42 percent were more likely than other debtors to experience a lapse in coverage. Even middle class insured families had fallen into the debt trap when they were sick. Comparatively this problem was not there in countries as Canada which had fully covered health costs for the population. There is hence a need for greater causal comparative analysis of the phenomenon of illness and injury as contributors to bankruptcy through a study of various factors entailed therein.
Problem Statement
There have been many causes for bankruptcy which have come to notice over the years. The main reason is that medical costs related to illness which has led to more than 50 percent bankruptcy cases in America. This is rather surprising as it has always been commonly believed that over expenditure by persons was the main cause of liquidation; however it now appears that the health care costs are the main reason for bankruptcy. This if found to be true will require establishing a more effective health care system which does not affect the survival of people and families in America. Once this is fully accepted then it will also facilitate agencies in identifying debt caused through excessive spending by using credit cards indiscriminately and other over expenditure by separating costs of spending on health care by individuals. Such separation will provide relief to individuals suffering from debt through medical expenses and they will be spared from harassment by credit card companies for recovery. (Wordsworth, 2000). Thus it is important to establish a relationship between bankruptcy and medical costs.
Review of Literature
A number of reasons have been stated to be the cause for bankruptcy. Over spending is one of them and has been long proclaimed to be the key reason by credit card companies. (Wordsworth, 2000). A number of studies have been carried out across the United States of America to analyze this issue. Many of these have come to link medical costs with bankruptcy. An important study by Teresa Sullivan of University of Texas and Melissa Jacoby has established this after surveying bankruptcies in eight federal judicial districts across the United States from California to Pennsylvania. (Wordsworth, 2000). Unemployment was another main cause but ultimately this too came to be linked with health as loss of job also meant denying health insurance. Another aspect of the problem is under insurance. (Wordsworth, 2000). Heavy medical costs in America at present leading to higher medical care bills also emerge as a combined reason. To examine this issue, there is a need to carry out a detailed analysis of medical expenses, diagnoses, access to care and work loss or lack of insurance cover to arrive at the key reasons for bankruptcy. (Himmelstein. Warren. Et Al, 2005). There is also a need for analysis based on data of debtors in bankruptcy courts to arrive at effective conclusions, though some studies have attempted to establish various criteria for the same. (Himmelstein. Warren. Et Al, 2005). While the Himmelstein study remains the major work on the subject, there are a number of other projects conducted before which also substantiate the hypothesis. The key ones are by Melissa Jacoby which covers data related to 1999 and demonstrates that the amount of personal debt cases due to medical expenses were quite a few. Another study in 2003 has indicated that there were a large number of American families who had problems in paying their medical bills. (Snowbeck, 2005). These claims have also been supported by a discussion with bankruptcy attorneys who supported the hypothesis to a large extent. (Snowbeck, 2005), (Fox, 2005). There have also been some studies which indicate that high out of pocket costs and under insurance as one of the causes of bankruptcy which also needs to be either supported or refuted. (Kennedy, 1972). This however has focused on the crisis in the health care sector rather directly addressing the factors which have caused bankruptcy in America. A comparison can also be carried out by an examination of the experience in Canada which has a government supported health care programme. The key issue that emerges is the high cost of health care in America as one of the primary reasons for people unable to afford treatment despite insurance and bankruptcy cover.
Hypothesis
The principal hypothesis studies the relationship between medical expenditure and bankruptcies. The hypothesis statement thus reads, “An increase in medical expenditures results in an increase in bankruptcies.”
Methods
The analysis is based on survey of primary and secondary sources of data available. A detailed examination of the data published by government and non government sources was carried out along with established studies the principal one being by Himmelstein. Warren. Et Al. (Himmelstein. Warren. Et Al, 2005). In addition details were taken from interviews with important bankruptcy attorneys who had knowledge of debt relevance and were willing to speak about them without fear. The interviews indicated the main causes for debt and if there was any evidence to prove that these were linked to medical costs. A direct response could not be sought from the debtors, but it was seen that the Himmelstein. Warren. Et Al study does provide very useful idea of the issues and hence conclusions were drawn from it. In addition studies carried out in Canada were also considered as a comparison. Thus detailed analysis of the data from the principal primary and secondary sources has been carried out, analyzed and results have been produced.
A survey of the co relation of health care expenditure by states and its impact on bankruptcy has also been carried out. The data survey is as per Appendices attached at Excel Work Sheets linked. (Copy of BkState00_05A.xls). The first page of the Sheet covers the bankruptcy state for all the 53 states of America and shows the bankruptcy per population for each state. In the second page of the sheet the per capita health care expenditure of each state has been summarized. (www.millbank.org). The inverse correlation between per capita health care expenditure by states and level of bankruptcy existing in each state is thus confirmed. States with a low level of per capita expenditure on health care also have a high level of bankruptcy as was seen from a comparison of data of top 25 states and bottom 24 states. The link between the two has been established with a large variation of .00768. (Copy of BkState00_05A.xls).
Discussion
A detailed analysis of the primary and secondary sources and the related literature in conjunction with the information provided by bankruptcy attorneys revealed that there is a link between increase in medical expenditure and enhancement in number of bankruptcies. The total number of bankrupt cases in the USA amounted to nearly four million debtors and their dependents in 2001. Debtors from medical problems were more than half of all bankruptcies. (Himmelstein. Warren. Et Al, 2005). These mainly belonged to the middle class and the poor were seen to be less likely to file for bankruptcy. Lapse of medical cover was another main cause which was revealed through the study by Himmelstein. Warren. Et Al. However to avoid any ambiguity in consideration, a detailed survey of other factors that can cause debt were also examined, these included unemployment, heavy spending and other problems the family. This established that there were not one but a number of inter related factors which determined debt liability. (Himmelstein. Warren. Et Al, 2005). Thus there was a need to carry out a comparative analysis of the causal relationship.
A look at the data by Himmelstein, Et Al denoted that while in 1981, 25,000 families had filed for bankruptcy as a result of serious medical problems, this number had increased 23 times by 2001, thus demonstrating the correctness of hypothesis under consideration. (Himmelstein. Warren. Et Al, 2005). The analysis also discovered a number of related factors which can be overcome by measures taken by society. The key issue was no insurance coverage which destroyed the financial safety of debtors. The Himmelstein study confirmed this finding that insurance had become unaffordable for a majority of debtors who had given up their policies. This was also accompanied by other types of problems, leading debtors to take the easy way out through bankruptcy. It also showed that these individuals had virtually lost the will to fight against poverty and thus took advantage of bankruptcy laws rather than fight it out.
Health insurance policies were also found to be inadequate to cover serious illnesses. This meant heavy under insurance and thus the health insurance options exercised by Americans were also said to be fewer. When Americans who were insured below the danger level which are a part of the high – deductible plans popular with various employers became liable for high costs of medical treatment they faced debt in the face of heavy medical bills which had become unaffordable. Illness and job loss went side by side in many cases and followed by loss of insurance coverage completed the cycle of poverty. Thus it was observed that a combination of loss of income and high medical bills comes as a financial misfortune for the individual leading to bankruptcy. (Himmelstein. Warren. Et Al, 2005).
A comparative study of data on expenditure of states on health risk cover and the per capita level of bankruptcies also indicates that where states have adopted better policies covering a greater portion of health expenditure, there is lesser bankruptcy. (Copy of BkState00_05A.xls). It is apparent that as the state spends less on health, the burden of expenditure falls on the individual causing what is called by sociologists as the ripple effect. (Pallarito, 2005). This firmly establishes a linkage in the larger context supporting the individual views of other research.
A study of other countries as that of Canada revealed that health insurance needs should be separated from employment so that loss of job due to illness leading to lack of insurance coverage as is the practice in the United States is avoided altogether. Research in Canada has also shown that lack of medical coverage before 1968 had been a primary cause of bankruptcy and this reduced considerably once medical cover by the state was introduced. (Byles, 2006). Canada in fact revealed a totally different trend from that of the USA which indicated that there was a low rate of medical bankruptcy which could well be followed in the United States. (Himmelstein. Warren. Et Al, 2005). On the other hand alternative systems such as allowing people to buy health insurance across states may be another way in which health costs of individuals can be reduced. (Pallarito, 2005). However this will have to be off set by the expenditure incurred by states by relating it to any criteria such as population and overall health care bills else it may lead to some states abandoning their health care responsibilities altogether.
Conclusion
The research has conclusively proved the correlation between a rise in medical costs to a rise in bankruptcy. The established practices in the United States thus need a review. There is ample scope for assessing the effectiveness of systems adopted by other countries as Canada and some European states and adapt the same. A study of these systems can be undertaken before adopting alternative policies and is considered a suitable area for further research.
References
1. Himmelstein, David U., Warren, Elizabeth, Thorne, Deborah and Woolhandler, Steffie J. 2005. Illness and Injury as Contributors to Bankruptcy.
2. Wordsworth, Araminta. 2000. US Study: Medical Bills Main Culprit In Bankruptcies. http://www.commondreams.org/headlines/042700-03.htm. (04 July 2006).
3. Kennedy, Edward. 1972. In critical Condition: The Crisis in America’s Health Care. New York. Simon and Schuster.
4. www.millbank.org/reports/2000shcer/nasotable14.html. (04 July 2006).
5. Pallarito, Karen. Medical Problems Cause Half of Personal Bankruptcies
http://www.forbes.com/lifestyle/health/feeds/hscout/2005/02/02/hscout523782.html. (04 July 2006)
6. Snowbeck, Christopher. http://www.post-gazette.com/pg/04219/357527.stm. (04 July 2006)
7. Fox, Maggie. 2005. Half of Bankruptcy Due to Medical Bills – US Study. http://www.commondreams.org/headlines05/0202-08.htm. (04 July 2006)
8. Byles, Ilieren. 2006. Parkland looks at The Bottom Line. http://www.uofaweb.ualberta.ca/arts/news.cfm?story=44411. (04 July 2006).