Credit Slips

Why Don’t People Sue Their Doctors Over Bad Credit Advice?

In my first post, I mentioned how common it is for fertility doctors (and other doctors, as the comments point out) to direct patients to specific third party creditors.  Sometimes doctors direct patients to credit sources that are inferior to other available credit.  This isn’t surprising because doctors face a conflict of interest when recommending creditors – doctors have to pay third party creditors they partner with when patients use loans to pay for treatments.  Different creditor charge doctors different amounts (you can see a run down here), so doctors have an incentive to pick the creditor who offers the best terms to the doctor, not necessarily the one who offers the best terms to the patient.  Other times, patients take out loans with third party lenders believing they are borrowing from their doctor or misunderstanding the terms of the loan.  I was fooled myself looking at fertility clinics' websites.  On a few occasions the website seemed to say the clinic was offering loans, but when I called the clinics, I found out that they merely partnered with third party lenders.

When patients rely on their doctors and get inferior credit or when they take out loans misunderstanding the terms, we might expect some of them to sue.  People who have successful treatments might be disinclined to sue (see pages 133-135 for an analysis of this in another fertility financing arrangement), but we'd expect people with failed treatments and loads of debt to get angry. 

But my question is what legal theories could people use?

The Origins of Medical Debt

I’m very grateful to have the chance to spend some time here at Credit Slips.  I’ve learned a lot from reading this blog for the last few years, so it is fun to be a small part of it.

One of the things that has occupied my attention over the last year is medical debt.  I don’t mean how much medical debt people have or how much medical debt contributes to bankruptcy.  Instead, I started thinking about the mechanics of how people take out medical debt and the role doctors play in that process. 

To see how doctors influence debt, I looked at the websites of every fertility clinic in the US.  Fertility care is the perfect place to think about debt because most insurance doesn’t cover it, and it is really expensive.  People have to pay for it out of pocket, and most people don’t have enough money on hand to do so, so they have to seek credit.

What I found was surprising to me.

Senate Hearing on Medical Bankruptcies (Oct. 20, 2009) (Pottow)

Yes, I went back to D.C. for more congressional bankruptcy brouhaha, this on the rising incidence of medical bankruptcies.  C-SPAN decided to broadcast the proceedings in all their glory.  Sen. Franken (D-MN) was armed with statistics on Swiss medical bankruptcies -- very well prepared, I must say.  Here's the video.  Hearing Ms. Burns' story about losing her son to cystic fibrosis -- and then her financial life -- was gut-wrenching.  The good news is that Sen. Whitehouse (D-RI) seems motivated to pursue his bill and is gathering increasing support.  For those wanting more in-depth analysis, here's my written testimony.

How to Count Medical Debt in Bankruptcy

Most Credit Slips readers will be familiar with the debate about the role medical debt plays in consumer bankruptcy. A big part of that debate is one about methodology with disputes about how to count "medical debt." Personally, I've always thought one of the most damning accounts of the role medical debt plays in bankruptcy came from Aparna Mathur, a scholar from the American Enterprise Institute (AEI). In a paper that heavily criticizes the other accounts, such as co-blogger Elizabeth Warren and Debb Thorne's work with David Himmelstein and Steffie Woolhandler, Mathur concluded "nearly 27 percent of filings are a consequence of primarily medical debt." If you do not like Himmelstein, Thorne, Warren & Woolhandler's count that more than 1 in 2 of all bankruptcies have a connection to medical debt, an AEI-affiliated scholar says it's 1 in 4. Either figure is a disgrace for a country with the wealth and resources of the United States.

An important new paper on the topic of medical debt now comes from Melissa Jacoby at the University of North Carolina (who helped us to found Credit Slips) and Mirya Holman at Duke University. They looked both at court records and survey responses from the Consumer Bankruptcy Project. (Disclosure: I am affiliated with the CBP.) They conclude, "By combining the methods, we find that nearly four out of five respondents had some financial obligation for medical care not covered by insurance in the two years prior to filing, but only about half of the court records contain identifiable medical debt, and of substantially more modest amounts." As someone who has just spent a lot of time thinking about research methods, these findings are a ringing endorsement for a multimethod approach to solving difficult research problems.

Credit Slips readers, however, are people who spend a lot of time thinking about credit and bankruptcy. If that describes you, this paper is a must read. Jacoby and Holman also have a couple of blog posts (here, here, and here) over at The Faculty Lounge discussing their findings

Highly Questionable Medical Bankruptcy Figures from Fraser Institute

The National Center for Policy Analysis (NCPA) is flogging a study from the Fraser Institute in Canada that purports to show U.S. medical bankruptcies are a "myth" because the Canadian bankruptcy rate is higher than in the United States. Reuters and BusinessWire have run the NCPA's press release as a story on their news services. Before anyone takes this study seriously, a few important facts are needed to place the Fraser Institute findings in context. To be as charitable as possible, the study's use of the bankruptcy data is extremely selective.

First, the Fraser Institute study begins by observing that advocates of a single-payor U.S. health care system use the assumption that such a system would prevent many U.S. bankruptcies because of the medical debt found among many U.S. consumers filing for bankruptcy. The study states, "We should expect to observe a lower rate of bankruptcy in Canada compared to the United States, all else being equal." First, I'm not sure that is an assumption made by advocates of a single-payor system (and I don't count myself as one of them). Second, the qualifier "all else being equal" is the whole point. There is a lot that is not equal between the U.S. and Canada, and there is no reason to expect bankruptcy rates to be precisely similar. Even on its own terms, however, the Frasier Institute study is highly suspect because of the narrow window it uses for its bankruptcy data.

The Fraser Institute study, which is really just a three-page report of existing data from government sources, used bankruptcy filing data for the calendar years 2006 and 2007 as the "most recent data." Both the Office of the Superintendent of Bankruptcy Canada and the U.S. courts have 2008 data available. For a report that carries a July 2009 date, the years 2006 and 2007 would not seem to be the most recent data available. Authors have to prepare publications in advance of their appearance, but the U.S. data were available in a press release dated March 5, 2009, and the Canadian data appear on a web page that states "modified March 11, 2009." There was surely plenty of time to use the 2008 data for a 3-page paper that has fewer data than this blog post. By limiting the data to 2006 and 2007, however, the report is able to support that the anti-health care reform agenda that the NCPA and the Fraser Institute seem to further.

Health Insurance to Go Broke With

An article in today;s New York Times chronicles how medical debt can financially ruin U.S. citizens even with health insurance. Policies with limits, often hidden from the consumer, quickly run out and leave the insured with mounds of debt. This story comes on the heels of an academic study by Credit Slips bloggers Debb Thorne and Elizabeth Warren and their co-authors, David Himmelstein and Steffie Woolhandler, showing an increase between 2001 and 2007 in the number percentage of medically related bankruptcies. I sometimes wonder how persons reading from outside the U.S. react to these sorts of stories.

Link to Full Medical Bankruptcy Article

On June 5, CBS ran a story, "Medical Debt Huge Bankruptcy Culprit." CBS News story. Not only is it an interesting write up, but there is a link to our (Himmelstein, Thorne, Warren and Woolhandler) full article, "Medical Bankruptcy in the United States, 2007: Results of a National Study." Full text of research article. So if you are interested, you can read the article in its entirety.

The latest Consumer Bankruptcy Project publication: Medical Bankruptcies

Along with my co-authors (Himmelstein, Warren and Woolhandler), I would like to share with the readers of Credit Slips some of the highlights of our most recent publication from the Consumer Bankruptcy Project 2007: "Medical Bankruptcy in the United States, 2007: Results of a National Study." (Published June 4, 2009, by The American Journal of Medicine.)

Tying an Auto Industry Bailout to Health Care

I'm skeptical about a government-sponsored auto industry bailout and think chapter 11 probably provides the best policy tool to deal with the current problem. Although auto industry execs have balked at the idea of a bankruptcy filing, some have promoted the idea of a "prepackaged" chapter 11 as if it offers some sort of risk-free panacea. That is wrong, and I recommend Fred Tung's post over at The Conglomerate where he discusses the pitfalls that even a prepackaged chapter 11 might have. Discussing a prepackaged filing presents similar tough issues as a regular chapter 11. My task with this post, however, is not to take on the question of whether we should bailout the U.S. auto industry but, if we do decide to do it, one way we might do it better.

Former Credit Slips guest blogger and oberlawyer David Yen suggested to me that an auto industry bailout be tied to the industry's health care costs. This is a good idea and deserves some attention in the debate. The idea, as Yen wrote to me, is:

Instead of just giving the Big 3 auto companies money, we should give them tax credits tied to their health care bill. The tax credit would be structured so that if a more comprehensive health plan is ever enacted, there could be a relatively smooth transition. This would be a two fer.

The tax credit would incentivize the auto companies to ensure their workers have adequate health-care coverage, helping to alleviate one of the biggest financial stresses on the American middle class.

Financing Boob Jobs, Facelifts, Braces, Root Canals, LASIK, oh, and Artificial Insemination

While the presidential candidates are busy debating healthcare finance, the Capital One barbarians and their friends have stepped into the breach. You can finance your elective healthcare through Capital One. It turns out that the company best known as a credit card issuer very effectively marketed by barbarians demanding to know "What's in Your Wallet?," has an entire operation dedicated to healthcare finance. Who knew? Capital One Healthcare Finance finances elective healthcare, such as dental, cosmetic, vision, orthodontic and fertility treatments.

I haven't been able to get precise rates off the web without submitting hordes of personal information, but they offer fixed rates ranging from 1.99% APR to 25.99% and payment terms of 18 months to 7 years (depending on the treatment). The pitch is that this is a cheaper way of financing elective healthcare procedures than credit cards--low fixed rates instead of variable rates. If this is true, then Cap One is providing a real service to folks who have elective medical issues--like wanting children--but don't have the cash on hand. Interesting to see Capital One Healthcare competing, in essence with Capital One cards.

Oh! The efficiency of the current U.S. health care system

I know that the most recent posts have focused on the mortgage fiasco, but I'd like to insert a quick thought on health care/medical issues.

I'll begin by laying my cards on the table---I am a strong proponent of a single-payer health care system. I've spent too much time talking with medically bankrupt families to have much use for anything else. One of the scare tactics used by opponents of universal health care is telling Americans that if we provide health care for everyone, well, gosh, the wait time for medical attention will be very, very long. Let me be blunt: This is hogwash, and my guess is that many folks who have tried to get in to see a doctor lately know it to be true. 

S-CHIP Comes to Bankruptcy Court (Please)

A month ago, a debate raged around S-CHIP, the State Children's Health Insurance Program (see here for background from the NYT). In the end, President Bush vetoed a bill that would have expanded the program to make health insurance more widely available to millions of uninsured children (but I digress). Putting aside the political back-and-forth over expanding S-CHIP, there are two empirical points that would seem relatively uncontroversial. First, many families who are eligible for S-CHIP fail to enroll. Second, many individuals arrive in bankruptcy court without health insurance or with gaps in health insurance coverage.

The bankruptcy system has an opportunity here to make the world a little bit better place. Eligibility for S-CHIP programs varies from state to state, but it is generally stated as a matter of annual income (relative to the federal poverty line) and size of household. Income and size of household also are two facts that debtors must disclose when filing for bankruptcy. When individual debtors arrive for their meeting of creditors, why can't bankruptcy trustees make two simple inquiries of debtors who fall within their state's guidelines. Do you have dependents under the age of 18? Do you have health insurance that covers these dependents? For those debtors who answer they do not have health insurance for these dependents, the trustee simply could hand them a form for enrollment in the state's S-CHIP program and refer any further questions about eligibility to the appropriate state agency.

Simply by issuing a directive as part of its oversight responsibilities for the standing bankruptcy trustees, the Executive Office of U.S. Trustee could implement this proposal in a heartbeat. Moreover, as participants charged with promoting the effectiveness of the bankruptcy system, the U.S. Trustee and the bankruptcy trustees should want to help direct eligible persons into state S-CHIP programs. Individuals who risk uninsured medical bills for their dependent children will be less likely to complete a chapter 13 plan and less likely to recognize the full benefits of a fresh start that the bankruptcy discharge gives them in either chapter 7 or 13. In the absence of action from the U.S. Trustee, I know of nothing that would stop bankruptcy trustees from implementing these suggestions on their own, and I hear that some bankruptcy trustees may already be giving debtors information about the S-CHIP program. That is a good idea that should spread around the nation.

Full Disclosure

In a Washington Times editorial today, Professors Todd Zywicki and Gail Heriot wrote an op-ed entitled "Junk Social Science Index" in which they criticized the testimony of Professor Elizabeth Warren and Dr. David Himmelstein before the U.S. House of Representatives' Subcommittee on Commercial and Administrative Law. Zywicki and Heriot attack Warren and Himmelstein's work on medical bankruptcies. Warren has posted a reply here on the Talking Points Memo blog where she thoroughly addresses the spurious claims Zywicki and Heriot make about her data. In the academic journal where their article first appeared, Warren, Himmelstein and their co-authors wrote a reply to their critics. Zywicki and Heriot do not discuss this reply, which begins with a critical point--all of Warren and Himmelstein's data are reported in the article and open for researchers to do their own interpretation, which is all Zywicki and Heriot did. They have no new data of their own.

What bothers me most is the tone that Zywicki and Heriot adopt. Rather than acknowledge that they are offering their own interpretation of Warren and Himmelstein's data, Zywicki and Heriot descend into a fit of innuendo and name-calling. They condescendingly refer to Warren, the Leo Gottlieb Professor of Law at Harvard Law School, as "Miss Warren" and to Himmelstein, an associate professor of medicine at Harvard Medical School and a practicing physician, as "Mr. Himmelstein." Zywicki and Heriot characterize Warren and Himmelstein's work as "junk" and "one of the most misleading pieces of research ever placed before Congress." They dismiss the entire committee hearing, and Warren and Himmelstein by association, as "just another arm of the publicity leviathan behind Michael Moore's new 'documentary' titled 'Sicko.'" Zywicki and Heriot apparently cannot even acknowledge Sicko as a documentary without some qualification.

Who is the publicity leviathan? It's only fair that people realize the source of these harsh characterizations. The Washington Times is well known for its radically conservative political views. Other commentary in the paper today included an op-ed suggesting that U.S. failure to stop Iran's acquisition of nuclear weapons was tantamount to France's failure to stop Hitler before World War II and an editorial not merely disagreeing with but actually accusing congressional Democrats of undermining the war effort. Zywicki will be known to many readers of this blog as the one legal academic who continually testifies to Congress in support of the consumer credit industry. For example, under the auspices of the pro-business Mercatus Center, he recently joined a report arguing against any restrictions on the subprime lending industry. Zywicki also served as head of the FTC's Office of Policy Planning in 2003-2004. Heriot is a member of a blog called "The Right Coast," where she recently blogged about her "conservative/libertarian instincts" (ironically enough in a post about when she was a volunteer for George McGovern). According to her web site, Heriot was counsel to the Senate Judiciary Committee under Republican Senator Orrin Hatch, a strong proponent of the 2005 bankruptcy law.

Views are not wrong merely because of the politics of the persons who hold them. But the politics of academics who hurl invective and call others' work "junk" while doing no data collection of their own should alert us when we have polemicists rather than dispassionate analysts.

FULL DISCLOSURE OF MY OWN: I should be so flattered to be part of the publicity leviathan for anything, but I'll make clear that Warren is a colleague, a co-author, a co-blogger with me here on Credit Slips, and a good friend. Both Warren and Himmelstein are collaborators of mine in the research project that led to the data collection involved in that article and an ongoing data collection effort.

Senate Thinks About the Middle Class

For those of us who care about credit issues, yesterday's Senate Finance Committee hearing, called by Senator Baucus, was instructive.  The title: "Can the Middle Class Make Ends Meet?" I testified, along with a Brookings fellow, a social worker specializing in pediatric oncology, and the president of a tax-cut foundation.  Three of us thought the middle class was in trouble, and the fourth thought that thanks to tax cuts the middle class was doing great and the with more tax cuts they would be even better off.  (You can guess who took what positions.) 

While the senators focused mostly on specific issues like paying for college or the impact of a medical problem, everything said in that room (except maybe the tax cut stuff) was also about credit.  Rising debt, falling savings, bankruptcy, aggressive credit marketing, aggressive collection--it all plays out against the background of what's happening to the middle class.  If families could still afford to put away 11% of their incomes in savings, as they did in 1972, then the credit and bankruptcy issues we discuss would be very different.

“Health Care Gluttons” in Bankruptcy

Yesterday New York Times blogger Judith Warner (registration required) asked a startling question:  What if the “health care glutton” is the new welfare queen?  This idea came at the end of a column addressing the recent efforts to scale back the Family and Medical Leave Act (FMLA), which provides workers with twelve weeks of unpaid leave to care for a personal illness, a new child, or a sick relative.  The statute’s critics want to tighten eligibility, allowing only workers with the most “serious” medical conditions to use the program.  Warner spends most of her column making the usual arguments that the FMLA cannot afford to be any more feeble than it already is.  The leave is unpaid, giving workers little incentive to take it unnecessarily, and the United States already has one of the weakest family leave systems in the world.  Our lack of paid maternity leave is on par with that of Liberia and Swaziland.

Warner derives the idea of the “health care glutton” from President Bush’s recent foray into the health-insurance debate, where he accused many American workers of having “overly expensive, gold-plated” health plans, and from the rhetoric of the National Coalition to Protect Family Leave (yes, that’s the group pushing to water down the law), which says that Americans are abusing the FMLA by taking leave for cosmetic surgery and “pink eye, ingrown toenails and colds.”  She conceives the “health care glutton” as the “villain du jour,” who “consumes doctor’s visits like so many donuts, sloughing off the burdens of his waste onto the hard-working and the health-care abstemious.”  She concludes by warning that if such rhetoric takes hold, the quality health insurance some American workers do have could go the way of welfare benefits.

If the image of the “health care glutton” takes hold, it could have a damaging effect on the consumer bankruptcy debate as well.  One of the central arguments for a generous consumer bankruptcy system is that vast majority of families who file for bankruptcy do so because of job loss, divorce, and/or medical problems.  But if the fact of having high medical bills becomes stigmatized in and of itself, where does that leave us?  Current bankruptcy critics argue that families who file are spendthrifts who acquire too many luxury goods.  I have nightmarish visions of future bankruptcy critics contending that these families are spendthrifts who acquire too much luxury health care.

The Department of Labor is accepting comments about the FMLA here until February 16.

Medical Debt on Credit Cards

Over the weekend, the Champaign News-Gazette published a story about rising medical debt and the use of credit cards to finance that debt. The story followed report earlier in January from Demos and The Access Project about the use of credit cards by low- and middle-income households to pay for medical expenses. The report, "Borrowing to Stay Healthy: How Credit Card Debt Is Related to Medical Expenses," is available online. Among its key findings:

"Twenty-nine percent of low and middle-income households with credit card debt reported that medical expenses contributed to their current level of credit card debt. Within that group, 69 percent had a major medical expense in the previous three years. Overall, 20 percent of indebted low- and middle-income households reported both having a major medical expense in the previous three years and that medical expenses contributed to their current level of credit card debt."

The report suggests troubling policy issues for those concerned about credit, bankruptcy, or health care. The report is well worth a quick read, and it suggests a fair amount of consumer debt may be medically related. Credit card debt is expensive. Moreover, we may not have a good handle on burden that high-deductible insurance plans are imposing on middle-class families. The government statistics each month simply report "consumer debt," and policy makers will take away from that label whatever information they're inclined to see in it.

It was not surprising to me that the local newspaper in Champaign, Illinois, would have spent the resources to create a story on this topic. We're one of the battlegrounds over what it means for a hospital to be nonprofit. Last September, the director of the Illinois Department of Revenue issued a ruling that one of our local hospitals lost its exemption from real estate taxes for failing to provide a minimal level of charity care. An explanation of the decision from law firm Duane Morris appears here.

The hospital involved in that decision, Provena Covenant, is featured prominently in the newspaper article. Both Provena and another local hospital, Carle, provide interest-free repayment plans to patients who qualify. The third area hospital, Christie Clinic

"has an arrangement with a medical credit card company called CareCredit to finance its patients' bills that stretch beyond three months. . . . CareCredit offers deferred interest plans for up to 18 months in which customers can avoid all interest charges if they pay off their debts in the agreed term, company spokeswoman Christy Williams said. However, customers who fail to meet the terms are subject to interest rates of about 23 percent or higher for the entire debt, and the interest rate can rise to 27 percent or higher on delinquent payments, according to a CareCredit application."

It sounds like we may continue to be a battleground in the definition of "nonprofit."

One in Five

One in five families spent more than 10% of their annual income on health care in 2003, says a new report in the Journal of the American Medical Association.  That's 48.8 million people younger than 65 (people over 65 were excluded from the study) living in families that spent at least 10% of their take home pay on medical care, an increase from 1996 to 2003 of 11.7 million people.  If that news isn't bad enough, consider the subset of people living in families paying more than 20% of their income on medical care--18.7 million people, or 7.3% of the under-65 population.  About two-thirds of these people had health insurance.

Earlier the Kaiser Family Foundation announced that nearly one-quarter of Americans are having trouble paying medical bills, and that 15% of families have been contacted by a collection agency about medical bills they cannot pay.

Debb Thorne, Melissa Jacoby and I, along with our Harvard Medical School coauthors David Himmelstein and Steffie Woolhandler, have written in a medical journal and a law review  about the impact of medical problems on bankruptcy filing.  If our 2001 findings were applicable in 2004, then about 800,000 families filed for bankruptcy following a serious medical problem, and about three-quarters of those families had health insurance when they first filed. 

The JAMA report is entirely consistent with our findings, but it raises a haunting question:  with the 2005 bankruptcy amendments pushing filings down to around 600,000 total this year, what has happened to families with unpayable medical bills? 

$25 Here, $25 There and Soon It Adds Up to Real Money

We have two $25 bills from our pediatrician for administering eye exams to our children. These exams were part of an annual checkup to see if the children needed to see an optometrist. Now we're in the endless circle of insurance doom. The health insurer (HealthLink) won't pay because they claim their insurance doesn't cover routine eye exams. The vision insurer (EyeMed) covers routine eye exams, but they won't pay because they say an eye exam administered as part of an annual medical checkup is not a routine eye exam. My wife spent an hour on the phone today trying to get this straightened out. The emphasis is on the word "trying." We will eventually prevail, and on a related note, see my upcoming post on optimism bias.

How much do these companies earn by taking aggressive positions with the expectation the consumer will just give up over a small dollar amount? It's only $50 to us, but when the companies take thousands of aggressive positions with thousands of customers, it adds up to real money for them. How much of the medical debt problem stems from problems such as these, with consumers not informed enough to fight unauthorized hospital bills or aggressive insurance companies? Even someone armed with the right information may not have the time to fight if they are working two jobs just to keep hearth and home together.

A New Form of Medical Debt (and Jacoby's Final Post)

This is my final contribution to the Credit Slips blog.  I thank Bob, the other contributors, and the readers for the opportunity to participate the past few months.    

I will sign off with a quick mention of an emerging form of medical-related debt.  This debt will not arise from the receipt of medical care, but rather from the failure to buy health insurance in contravention of the new individual mandate in the Massachusetts health plan now getting underway.  Oversimplifying greatly, uninsured people (at least those who can be identified through tax returns) will be legally required to buy insurance, and the government eventually will impose steep financial penalties for non-compliance and collect those penalties through the tax system and other enforcement methods.  In other words, a person may owe many thousands of dollars in penalties to the government because she didn't buy an insurance policy that the government deemed affordable for her, even if she has paid every medical bill she has ever received (and if she files for bankruptcy, I assume the government will argue that the penalties are nondischargeable -- unlike most debts owed for actual medical care to providers).  As the prior sentence suggested, the requirement is triggered on the availability of affordable insurance products.  Other facets of the Massachusetts plan aim to ensure that cheaper insurance products are offered (e.g., through subsidies and the Connector). But cheaper and affordable are not synonymous.  And we learn from personal bankruptcy and the debates over means testing (in both concept and in detail) that affordability often is in the eye of the beholder.  The able people charged with developing the various affordability determinations have a complex and consequential task.

Bankruptcy, Eviction and Patient Records

The 2005 bankruptcy amendments added a provision to the Bankruptcy Code to help protect the privacy of patient records in the bankruptcy case of a "health care business."  The provision sets forth a process by which a trustee can notify patients about their records (broadly defined) and then ultimately destroy them if they are not claimed.  But reality may not always operate according to such plans.   According to this news story, a giant pile of patient financial records of a bankrupt doctor were found in a parking lot after an eviction overseen by the sheriff and the building manager in the doctor's absence (thanks to Rebecca Redwine for the tip).   

Defaulting on inter-family loans

Major news media outlets have been reporting on a business that manages inter-family or inter-friend loans, focusing on a company called Circle Lending (thanks to Salil Mehra for the tip).  Medical debts are among the business'  list of popular reasons for personal loans between family members, so the service was of immediate interest to me.  But beyond this, I would focus readers' attention on the stated protect-the-personal-relationship justifications for an formalizing intermediary and how these justifications relate to broader discussions of our debt collection system that sometimes is thought to be inefficient.  If an inter-family secured loan is set up properly, and the borrower defaults, the lender may exercise formal remedies (and in an NPR story linked on the website, the founder makes clear that this is contemplated).  Of course, foreclosing on one's grandson could indeed have relationship implications, so the relationship-protecting idea presumably stems from the belief that a borrower is less likely to default on an inter-family loan given the use of extra formalities that expand collection and enforcement entitlements even if rarely used.  Presumably, the risk of default is also lessened to the extent that these loans are granted with lower interest rates than those available from those in the business of extending credit to individuals?

Differential Methods of Medical Debt Collection

Should medical debt be subject to different collection rules than debt owed to other creditors such as credit card issuers?  My answer to this has generally been "no," in part due to the fungibility of obligation. But even if states refrain from imposing differentially restrictive rules, various collection approaches are naturally generated through other means.  Specialty publications on collections have featured a variety of articles on the evolution of medical debt collection (thanks to Jason Kilborn and Nick Sexton for tips on some of the recent ones).  The stories in periodicals such as Collections & Credit Risk have been paying particular attention to the outright purchasing (as opposed to contingency collection) of medical debt from hospitals or other providers.  The stories in the collection industry publications convey the impression that medical providers impose more constraints on the collection techniques of debt buyers than the originators of other debts do because of the nature of the obligation and the localized nature of the business and resulting public relations issues.   Thus, less litigation, prohibitions on resale of the debt, etc.  Of course, some patients immediately use a credit card for the self pay portion of the debt.  If they don't pay, and if such bad credit debt gets sold, it will be sold as general consumer debt, presumably without these particular originator restrictions.  Medical providers still have incentives to encourage patients to use credit cards at the outset; bad medical debt portfolios are selling for only a few pennies on the dollar.  It is possible that some convergence could occur if buyers purchase newer accounts receivable, and then team up with lenders to provide financing options for patients. 

And Speaking of Medical Debt . . .

. . . check out this story (thanks to Lisa Stifler for the tip).   Although the story was written to draw your attention to the magnitude of the hospital debt and the collection efforts, I suggest that readers also focus on the signs in the story that hospitals often do not make collection practice decisions unilaterally.  Also buried in the story is the indirect financial impact on the patient's household.  

Medical Debt For Rural Americans

A recent study conducted by the Access Project reports on the sizeable medical debts facing rural Americans. A survey asked Kansas farmers to report on their medical bills to doctors, hopsitals, dentists, and pharmacies. Although 95% of the farmers and their families had some form of health insurance, approximately 1 in 6 families had outstanding medical debts. The median amount of medical debt among those who had overdue bills was $2,500.

These data align with my empirical research about rural Americans who file bankruptcy. My principal finding was that rural debtors are in terrible shape, with very high debts and very low incomes when they file bankruptcy. Their situations are worse even those of debtors living in urban areas, the demographic studied in most empirical work.  As I wrote in Going Broke the Hard Way: The Economics of Rural Failure, 2005 Wisc. L. Rev. 969, 1015-1018, rural families were significantly more likely than urban families to have faced large out-of-pocket medical bills before bankruptcy. This was true despite identical rates of insurance among the two samples of debtors. I hypothesized that this disparity resulted from differences in the quality and scope of the health insurance, and noted that at least one author had concluded that rural people were less likely to have employer-provided insurance, which is often more protective than the high-deductible or catastrophic policies that are affordable to those who cannot purchase group coverage. The Kansas farmers fit this model, although note that my sample contained almost exclusively non-farming rural citizens.

To the extent rural America is home to more self-employed people, more low-wage workers, and more people working for small companies, the percentage of those having to settle for high-deductible, limited-coverage health policies for cost reasons is likely to be higher. And as co-bloggers Melissa Jacoby, Elizabeth Warren, and Debb Thorne have observed, the quality of health insurance can be as important as the presence of insurance in preventing overwhelming medical bills. Medical debt is just one more way that rural Americans are particularly vulnerable to financial collapse.

Job Security Polling Data

Employment problems figure prominently in discussions about personal bankruptcy filings, so both the perception and reality of job security are relevant to those of us who study or work in the debtor-creditor system or who are trying to figure out whether people adequately recognize and prepare for adverse events.  Karlyn Bowman, a resident fellow of the American Enterprise Institute, has just posted a very useful updated set of major polling data on work and workers' perceptions -- see here for the press release and here for the report containing the polling data. 

It is particularly interesting to compare responses to questions about events that actually have happened (in the past to themselves or to other people) with questions about perceptions of their own job security risk.  For example, in a 2005 poll that asked whether their employer had laid off any employees in the past six months, 27% reported that there had been layoffs.  And 22% in a 2005 poll reported having been personally laid off or fired in the past five years (I can't tell from the report whether these 2005 results are from the same or different polls - check out pages 10-12 of the report).  But in April 2006, only 10% said it was very likely or fairly likely that they would lose their jobs (15% said they were worried about being laid off in a 2005 poll, in response to a differently worded question).  Readers also may want to check out the results of the questions about wage and benefit reductions.  Although interpreting the job loss findings together should be undertaken with care, they appear to present an interesting contrast to polling respondents' worries about falling deeply into medical debt that I wrote about when Credit Slips first began. 

Hospital Bad Debt and Medical Credit Cards

A leveraged buyout is in the works for the Hospital Corporation of America, a giant for-profit hospital operator.  The stated reasons for HCA’s disappointing stock performance in recent years depend on the news story, but at least one national news report has highlighted uncollected patient bills as a major culprit. Surely this is too simplistic an explanation, but the existence of significant bad debt owed by patients to for-profit hospitals makes one wonder why medical providers haven't been more successful in encouraging patients to use third-party credit (e.g., credit cards) to finance the self-pay portion of their care. Apparently, various credit providers and accounts receivable management businesses have had similar thoughts.  As can be seen here and here and here, credit products now are being marketed specifically for medical expenses to both patients and providers.  The real growth in medical credit will flow from the rise of health savings accounts that offer credit components.  These medical credit products aren't likely to transform the for-profit hospital industry, but, depending on their terms, could have a significant effect on household finances.

Credit Slips from Getting Sick?

Everyone is talking about household medical debt this week. American Enterprise Institute Research Fellow Aparna Mathur has just issued a report finding that “nearly 27% of bankruptcy filings are a consequence of primarily medical debt” based on an analysis of data from the Panel Study of Income Dynamics. Meanwhile, over at the Center for American Progress, we can find the results of a poll in which 44% reported being worried about falling deeply into debt because of medical expenses – more than were worried about being hurt or killed in a terrorist attack or losing a home in a natural disaster.

Medical debt deserves a prominent place on the public's radar screen and on the research agenda of scholars from a variety of disciplines.  Still, a slight reframing of the problem is in order.  Incurrence of catastrophic medical expenses is a serious policy issue but a rather rare event.  Flowing far more commonly from medical problems is the incurrence of non-catastrophic (but still substantial) out-of-pocket health and incidental expenses coupled with income loss, various opportunity costs, and the price of credit used to smooth consumption when household savings are not up to the task.  It is this more subtle and complex combination that is heightening financial risk for many American households.