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Highly Questionable Medical Bankruptcy Figures from Fraser Institute

posted by Bob Lawless

US Banrkuptcy Rate per 1000 Population 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.


For both 2006 and 2007, the Fraser Institute study reports a Canadian bankruptcy filing rate of 0.30% of total population or 3.0 for every 1,000 persons. As the table to the right verifies, the Canadian bankruptcy rate for those two years is lower than in the United States, hardly a surprising result given the draconian 2005 U.S. bankruptcy law and the artificial dip in U.S. bankruptcy filings at that time. Here is the thing: for any other year in the past ten years, the U.S. bankruptcy rate is higher than 3.0. Examining the most recent data, as the Fraser Institute study purported to do, would have shown a higher 2008 rate for the United States. For 2009, my projection (approx 1.45 million bankruptcy filings) suggest a U.S. bankruptcy filing rate of about 4.7 per 1,000 total population.

US Banrkuptcy Rate per 1000 Population Over 18 The Office of the Superintendent of Bankruptcy Canada has data on the Canadian consumer insolvency rate based on the population aged 18 and over. Using the adult population as a base certainly makes more sense than using the total population as the Fraser Institute study does, but in fairness, I do not think their substantive results would have differed had they used the adult population to calculate a bankruptcy rate. Combining the Canadian data with data from the U.S. courts and the U.S. Census, the table to the right shows the bankruptcy filing rate for the adult population for both countries. Again, in all years but the two that the Fraser Institute study happened to pick, the U.S. bankruptcy filing rate is higher.

I'll stop there. The facts speak pretty clearly for themselves. Hat tip to Credit Slips reader and commenter AMC for bringing this matter to my attention in a comment to a blog post.

Comments

I've always been skeptical of claims that unpaid medical bills "cause" bankruptcy. Many of my chapter 7 clients have medical bills that were not wholly covered by insurance, and I've seen some cases where the medical bills clearly predominate. But to me, the triggering cause is usually something more immediate, such as a garnishment, a foreclossure, the loss of a job, or a divorce. What are the generally-accepted criteria for asserting that unpaid medical bills "cause" bankruptcy?

As a chapter 7 trustee in New Jersey, I agree with Mr. Jones. My sense is that perhaps 10-20% of consumer debtors have significant unpaid medical debt or have incurred substantial credit card debt to service their medical debt. Rarely are those the only obligations outstanding. The consequences of serious medical problems that lead to bankruptcy are more often loss of income and the absence of disability insurance.

The previous commenters have hit the nail on the head. The phrase "medical bankruptcy" was invented by a group that supports a single payer system and extensive income supplements for caregivers. They designated the criteria for what was a "medical bankruptcy", which are amazingly loose. There was no peer review of their studies or criteria. There was no disclosure of what other factors were involved in the bankruptcies or what happened to the debtors' assets given exemptions. In fact, the percentage of bankruptcies in which there were medical bills above their low threshold was relatively similar to what the commenters above recount from their practice - about 28%. They goosed up the size of "medical bankruptcies" by including bankruptcies in which the debtor lost some income due to illness or caregiving demands.

Regardless of what one thinks of the other studies, the latest claims from the Fraser Institute hardly improve our understanding. The selective presentation of the data obscures rather than illuminates.

I suspect those medical claims will jump in their numbers due to high unemployment and COBRA premiums despite the recent help on that issue. Medical costs, industry wide are just so freggin ridiculous! We usually don't see those medical costs until after they have been in collections for a while to add to all of the confusion in bk. Of course we never see claims in Non-Asset 7s so its tough to get a true sense of the amount of debt just by reviewing schedule F or even payments to them listed in the SOFA. In chapter 13s, its still a pretty rare thing to see a POC for medical debt. Our local Med system "Spohn" does get them in but its more of a 50/50 kind of thing.

Another issue is that no one is really calling the medical billing companies on the accuracy of their POCs (when they do get them in, I mean really. What's the point?) As we all know medical billing errors are rampant and supper hard to fish out due to the wide array of medical billing codes. (and really, who the hell has the time?) If I had a dime for every time I heard "Insurance was supposed to pay that but had denied the claim"... Mr. Jacobson would be best to answer if he actually is going after these companies for not paying a claim in bad faith. I never see that locally.....ever! Are there some? Most likely.. The system is just way too complicated to fish out the right info to make a case and the volume is way too large.

Well somebody needs to make the obvious point about the use of filings in 2006 and 2007. These are the years immediately following the enactment of BAPCPA. Bankruptcy filings nationwide dipped dramatically in 2006 in part because so many people filed in October 2005, right before the new law was passed. They also dipped because the new law itself added new hurdles to the filing process. Finally, they also dipped because (at least for the first year following the enactment of BAPCPA) a significant portion of the potential filing population believed that, when BAPCPA was enacted, Congress had "abolished bankruptcy."

How convenient, then, for the Fraser Institute to use those two years, conveniently omitting the impact of BAPCPA on bankruptcy filings nationwide.

In a democracy that values freedom of speech, it's easy to short-circuit honest dialogue about important public policy issues. You need only be totally amoral about your responsibility to tell the truth.

Does this refer to companies like cearner or ECAOS ?

All I got to say is AMEN! lmclark. It seems like its just the kind of report certain policy makers use to make a ridiculous argument /(amendment in a democratically controlled congress and then say "we tried to fix the legislation through amendments") I do believe I heard that just this morning....

Good call, lmclark. It's also important to point out that bankruptcies in the US dipped in 2006-2007 because America was in the midst of the biggest credit bubble in history.

Greg, medical bills can be huge depending on what sort of treatment you had through the hospital. They can often be as staggering as a mortgage, and sometimes more so. Please don't be so quick to write it off.

-Cin

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