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How to Count Medical Debt in Bankruptcy

posted by Bob Lawless

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


I think what might complicate the searches (and I have not read the papers or blogs yet) is that most of the medical debt is old and have passed to collection companies,sometimes 3-4-5-6 different times. Some debtors look at their credit report and see a creditor and don't even know who or what they are collecting on. Again its more like a 1 in 5(est.) ratio of med debt collectors actually filing a claim in 13s and of course in a no asset 7, no poc is ever filed. There are so many holes to account for when reviewing bks for med debt. It may not even ever show up on a credit report which is what we usually use as a "catch all" in reporting pre-petition debt. I have personally spoken with some local doctors offices(some of the office personnel actually being our own bk clients) and come to find out when they receive a bk notice they write it off and forget about it and its usually the portion that insurance did not cover.

It is such a shame that we still have to debate on whether medical expenses should be a part of bankruptcy or not. Most Americans are hard working and responsible so if they are forced to file for bankruptcy, all debts should be counted. I have a sneaky suspicion that those who file for bankruptcy have some outrageous medical bills. We have helped a lot of people outside this country, can't we help our own citizens and include medical bills in all bankruptcy proceedings? This is where the debt jubilee they are talking about can play an important role.

Evelyn Guzman
http://www.debtchallenges.com (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.)

Patches - Agreed that old medical debt complicates the search, including because those debts are less likely to be identifiable as medical in court records. The paper does talk about this. Would certainly welcome your comments on the paper if you get a chance to take a look at it. Thanks!

"Either figure is a disgrace for a country with the wealth and resources of the United States."

I disagree. 1) It's a very, very, very small slice of the total population, well below 1%. In a large heterogeneous society, every policy is going to fall short in some respects and that in my opinion is a sufficiently small error rate, if you will, to tolerate, and certainly not "a disgrace". 2) Bankruptcy usually provides "medical debtors" a very good result. It is a different solution than other payment mechanisms but economically it is the same as getting someone else to pay the cost of medical care. In the typical "medical bankruptcy" the debtor pays nothing or next to nothing on account of "medical debts". In addition, the amount of exemptions is often a very substantial portion of the debtor's assets, as was seen in relation to the Yurdin story a few weeks ago, which means that the debtors often wind up in as good a postion economically after their "medical bankruptcy" as if they had had the benefit of the most generous medical insurance policy in this country. I've never had an individual client say to me, wow, bankruptcy was horrible. Everyone has said, I wish I did this sooner.

Read the paper last night and I'm going to have to read it again. I have so many comments more like affirmations on what you said. The first few paragraphs alone sparked a ton of connections in my mind on the scope of the problem.

Face to face with the actual debtors is so different. Some may use a credit card to purchase meds, pay co-pays, etc..but if you calculate what I like to call "Biblical Borrowing" truly even regular purchases for groceries and gas can be attributed to high medical costs. Case in point was just yesterday I had an elderly couple in here, she has cancer and they have no insurance. A doctors visit just so that a nurse can hand over a prescription costs $75.00 a pop! Last week alone they had to dole out $150.00 just to receive two prescriptions(1/3 of the meds she needs on a monthly basis) That's not even filling them! When all is said and done they had to dole out over $300.00 in one week on a budget that only included a VA Disability and his part time job. With a Mortgage, Car payment, Electricity, etc... of course they are having to finance through credit cards stuff like food, gas, car maintenance,etc. They affirmed that roughly 20% of their credit card debt is directly related to medical debt but when asked about the "Biblical Borrowing Scenario" they stated more like 35%. That may not be an average locally or nationally but it is telling on what the average non-insured debtor is facing. Our older Americans living on
fixed incomes are especially pron to this.

I have another story on debtors paying for supplemental insurance in addition to having group health insurance. Although they are paying roughly $400-$500 a month on insurance their little girls health problems are still producing a mountain of debt. To tell their story and others this would have to be a 5-6 pager.. and I have 7 bankruptcy interviews today... will continue tonight.

Patches - really helpful examples and thoughts, thanks, and helpful to hear the paper is consistent with your experiences.

Nice post. I, too, found the argument of "it's not that bad" silly. Even if it's only half as bad (which I doubt), it's disgraceful. I just backlinked to your post in a post I did on the subject for Bankruptcy Law Network, http://www.bankruptcylawnetwork.com/2009/11/25/medical-bankruptcy-is-no-myth/.

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