Medical debt is not created by deadbeats
Bankruptcy Reform’s Impact: Where are all the “deadbeats”?
National Association of Consumer Bankruptcy Attorneys
February 22, 2006
The following are key findings from a National Association of Consumer Bankruptcy Attorneys (NACBA) survey of six major credit counseling agencies that have dealt with a total of 61,335 consumers under the new federal bankruptcy law:
- Almost none of those seeking bankruptcy protection are able to repay their debts. Fewer than one out of 20 consumers (3.3 percent) were candidates for paying off what they owe under a debt management plan (DMP), with the remaining 96.7 percent requiring the same bankruptcy filing that they would have needed before the new bankruptcy law went into effect.
- The vast majority of Americans seeking bankruptcy protection are victims of unfortunate circumstances, not imprudent spenders seeking to cancel their debts. Four out of five consumers (79 percent) seen by credit counseling agencies are suffering from debt “caused by circumstances beyond their control (e.g., loss of a job, medical expenses, death, divorce or other change in marital status, increased minimum payments on credit cards, predatory lending, and so on). Only about one in five of the respondents (21 percent) were identified as suffering from debt due to “circumstances within their control”. The credit counselors included in this group all of those individuals who did not deliberately seek to accumulate excessive debt and, instead, through creditor blandishments and lack of financial sophistication, “got in over their heads” as finance charges and other fees mounted over a period of years. Thus, the masses of expected deadbeats who were supposed to be identified under the new law and forced into debt management plans have not materialized.
Testimony of Elizabeth Warren, U.S. Senate Judiciary Committee:
“Overwhelmingly, American families file for bankruptcy because they have been driven there - largely by medical and economic catastrophe - not because they want to go there.”
http://nacba.com/news/022206NACBAbankruptcyreformstudy.pdf
Comment: By Don McCanne, M.D.
The bankruptcy reform legislation was a solution designed to address a fictional problem. Had the bankruptcy issues been carefully defined, the resulting legislation would have had virtually no resemblance to what was produced.
This issue is important to health care reform advocates for two important reasons.
Specifically, our flawed insurance system is resulting in medical debt that has compounded the problem of personal debt. When the cause of medical debt is correctly defined, the solution would have been to reinforce the insurance system so that it would prevent financial hardship in the face of medical need.
More generally, we are now seeing a drive toward a solution based on the fiction that much medical spending is unnecessary, spending that would not occur if individuals were personally sensitive to the costs. Thus the solution proposed results in the increase of medical debt for individuals with greater health care needs. The real problem is that beneficial health care services are becoming less and less affordable, affecting disproportionately those with greater needs. The appropriate solution is to adopt a system that prevents financial hardship while reducing waste through improved resource allocation. This, of course, is precisely what the single payer model of national health insurance is designed to do.
More about medical debt soon. Stay tuned.