Bankruptcy and Health Insurance

As we prepare to give thanks for living in a nation of abundance, we are reminded that some do not share in that abundance. Filing for bankruptcy would seem to be about the most unabundant thing someone could do. The New York Times has a story today about the link between not having health insurance and bankruptcy.

This has been a favorite theme in the rhetoric making the case for health-care reform, including the president's assertion that not having health insurance causes a bankruptcy every 30 seconds, a claim that has not stood up well.

There is a lot that is slippery to this argument.

One area of slipperiness comes in the use of the word "cause." If there is a causal relationship between two things, and the direction of causality runs from "a" to "b," then a change in "a" should bring a proportional change in "b." This inspired me to pull together a chart that shows the relative change in population, number uninsured, and number of bankruptcy filings over the past decade:

If the causality runs from health insurance to bankruptcy, then the lines should move together. Yes, the bankruptcy rules got tighter in 2005, leading to an upturn in bankruptcy filings, but before and after 2005 the bankruptcy line has a steeper slope. If there was a causal relationship, why would the number of bankruptcy filings have started moving up again post-2006 when the number without health insurance was comparatively stable?

Another source of slipperiness comes in tying the evidence together. What most people call "health insurance" is medical-expense insurance, not insurance against the financial consequences of changes in your health. The evidence, including the most recent study by a team lead by David Himmelstein, a long-time advocate of national health insurance, shows that having something go wrong with your health can bring about bad things, including bankruptcy. Why? For most Americans, the income that comes from working is the almost-total source of their income. If something happens that has an impact on their ability to work, they are in big trouble. That would not be true if people had more savings. Among Americans in the lowest quartile of net worth, the median amount of financial assets was $1,100 in 2007.

That isn't much protection against the unexpected.

What's surprising is the similarity in having health insurance among those with medical and non-medical factors at work in their bankruptcies. Himmelstein and colleagues group people into those with and without medical causes to their bankruptcies. "Medical causes" include those who cited illness or medical bills as a reason for filing, those who reported medical bills over $1,000 over the past two years, those who missed at least two weeks of income from work due to illness, and those who took out a mortgage to pay medical bills. The fraction of those who did not have health insurance was statistically undistinguishable between those who Himmelstein's team defined as having "medical" and those who had "non-medical" causes of their bankruptcies (30.8 percent uninsured among those with medical causes, 30.9 percent among those without.) There was a statistically significant difference among those who reported having a lapse in health insurance over the past two years, but in both groups a majority had been covered by health insurance throughout the past two years.

Conservatives and liberals might draw different conclusions about what is to be done, with conservatives emphasizing the potential for medical savings accounts to help families when large medical costs happen and liberals calling for more generous unemployment and disability insurance. No one should expect universal insurance against medical expenses to bring about a large decline in bankruptcies.