Health Insurance: What Do You Really Know?

Health Insurance: What Do You Really Know?

CNN was running a special this evening as part of their "Broken Government" series, and we were so unimpressed with it we turned it off. There seemed a lot of holes in their discussion that made me very skeptical that I was learning much.

One of the claims that they made, based on the Himmelstein et al. study here, is that more than half of U.S. bankruptcies are caused by medical expenses--and they gave a couple of horrifying examples of families with a really sick newborn that ran through the lifetime cap on their coverage. (You didn't know that there was a lifetime cap? Look carefully. It is usually one million dollars in total care.) My first reaction to this was, "I know that these things happen, but it is hard to believe that this is a common thing."

The Himmelstein study is worth reading. I notice several interesting points about it, some of which were either not mentioned by CNN, or which were given so little attention that I missed them:

1. This study is of "medical bankruptcy" which includes bankruptcies caused by illness that caused someone to be out of work--not necessarily just uncovered medical expenses:

Under the rubric “Major Medical Bankruptcy” we included debtors who either (1) cited illness or injury as a specific reason for bankruptcy, or (2) reported uncovered medical bills exceeding $1,000 in the past years, or (3) lost at least two weeks of work-related income because of illness/injury, or (4) mortgaged a home to pay medical bills.

2. Some of the "medical bankruptcies" are "medical" only in a sense that most Americans won't recognize:

Our more inclusive category, “Any Medical Bankruptcy,” included debtors who cited any of the above, or addiction, or uncontrolled gambling, or birth, or the death of a family member.

Well, yes, uncontrolled gambling or addiction can cause bankruptcy, and to the extent that an addiction is a medical problem, I guess you could call these "medical bankruptcies" but that's not what CNN wanted you to be thinking about, was it?

Still, let's not exaggerate how much this contributes. The "Major Medical Bankruptcy" group was 46.2% of the bankruptcies; this goes up to 54.5% when you add the "Any Medical Bankruptcy" category as well.

3. The extent to which medical expenses caused or contributed to the bankruptcy is based on self-reporting by those going bankrupt. How accurately are the bankrupts recognizing the actual cause, and how honestly are they reporting it?

4. Some of those who went bankrupt may have had these $700,000 medical bills, such as one of the families that CNN showed. But to the extent that medical bills contributed to these bankruptcies, it isn't clear how much the medical bills contributed. The "Major Medical Bankruptcy" category included those with "uncovered medical bills exceeding $1,000 in the past years." Look, $1,000 is a lot of money, and certainly, there are people who had $20,000 or $100,000 in medical bills. Bankruptcy makes perfect sense for many people under those conditions. But if someone goes bankrupt on $2,000 in uncovered medical bills, for almost anyone who has better than a minimum wage job, this has to be the straw that broke the camel's back. This can't be a significant factor in causing bankruptcy.

I see from Exhibit 2 that 2% of bankruptcies had "mortgaged home to pay medical bills"--which is probably families that had really, really serious problems. They might well be the families with $700,000 medical bills that exceeded their health insurance, or they might be people who had no health insurance and something bad happened.

5. The report tells us in the summary (as CNN did) that many of those going bankrupt had medical insurance. But in the guts, it also tells us:

A lapse in health insurance coverage during the two years before filing was a strong predictor of a medical cause of bankruptcy (Exhibit 3). Nearly four-tenths (38.4 percent) of debtors who had a “major medical bankruptcy” had experienced a lapse, compared with 27.1 percent of debtors with no medical cause (p < .0001).

Exhibit 3 has one of those tables that is a bit confusing, but shows that 32% of bankrupts had no medical insurance when they filed, and 37.7% had a lapse in coverage in the preceding two years. This isn't surprising; if for any reason (loss of job, ran out of COBRA, couldn't afford to pay for health insurance, stupidly decided that you didn't need it) you were uninsured and ended up with a major medical expense, it would be unsurprising if you ended up going bankrupt.

6. How anyone could honestly read this study as proving that there was a major, widespread crisis of bankruptcy caused by medical bills alone, or even primarily, eludes me. As the paper points out:

Debtors’ out-of-pocket medical costs were often below levels that are commonly labeled catastrophic. In the year prior to bankruptcy, out-of-pocket costs (excluding insurance premiums) averaged $3,686 (95 percent CI = $2,693, $4,679) (Exhibit 5). Presumably, such costs were often ruinous because of concomitant income loss or because the need for costly care persisted over several years. Out-of pocket costs since the onset of illness/injury averaged $11,854 (95 percent CI = $8,532, $15,175). Those with continuous insurance coverage paid $734 annually in premiums on average, over and above the expenditures detailed above.

Now, $11,854 over several years, for some people, would be a great burden. For the very poor, it would make sense to go bankrupt on that amount of money. We can see from the confidence interval that there would have been a small number of these bankrupts with bills that ran into the $100,000 area and above. But if large numbers of people with good jobs are going bankrupt because of uncovered medical bills of $3,686 per year, there's got to be more to the story.

There is a real problem. But I am impressed how much this paper has been distorted as evidence that our health insurance problem is causing lots of people with good jobs to go into bankruptcy.