By Reed Abelson
Sometimes, all it takes is one bad fall for a working person with health insurance to be pushed into bankruptcy.
Hundreds of thousands of Americans file for personal bankruptcy each year because of medical bills – even though they have health insurance, according to a new study by Harvard University legal and medical researchers.
“It doesn’t take a medical catastrophe to create a financial catastrophe,” said Elizabeth Warren, a Harvard law professor who studies bankruptcy and is one of the authors of the study.
The study, which is scheduled to appear today on the Web site of Health Affairs, an academic journal, provides a glimpse into a little-researched area connecting bankruptcy and medical costs. About 30 percent of people said they filed for bankruptcy because of an illness or injury, even though most of them had health insurance when they first got sick.
Many lost their jobs – and their insurance – because they got sick, while others faced thousands of dollars in co-payments and deductibles and for services not covered by their insurance.
One person cited in the bankruptcy study, for example, broke a leg, missed a couple of months of work and then had $13,000 in unpaid medical bills, though his employer-based health plan had already paid for much of his care, Ms. Warren said.
Another respondent to the survey was able to pay for hospital stays for lung surgery and a heart attack but could not return to his old job. When he found a new job, he was denied coverage because of his pre-existing conditions, which continued to require costly medical care and contributed to his bankruptcy.
Policy analysts say these findings underscore the limitations of the nation’s current system of providing health insurance largely through employers. Some argue that even for those with insurance, benefits can be ephemeral.
“You can lose it because it’s tied to employment,” said Joseph Antos, a health policy researcher with the American Enterprise Institute, who said people were also at risk if their employers went out of business.
To understand the effect of illness or injury on bankruptcy, the researchers surveyed 1,771 people who filed for bankruptcy in 2001 and interviewed 931 of them. They discovered a complex web of factors leading to bankruptcy, particularly as illness caused people to lose their jobs or cut back the hours they worked just as they were facing high medical bills.
Many of those families, Ms. Warren said, then “endured a one-two punch.”
The researchers examined those who specifically reported that their bankruptcies were precipitated by financial burdens caused by medical illness. They also included in a broader category of medical-related bankruptcy people who had more than $1,000 in unpaid medical bills at the time of the bankruptcy filing or had mortgaged their home to pay those bills.
The researchers acknowledged that often there was no single reason why someone went bankrupt. “There’s definitely overlapping reasons,” said Steffie Woolhandler, an associate professor of medicine at Harvard and one of the authors of the report.
They also pointed to gaps in coverage that left people vulnerable to financial crisis – particularly when workers switched jobs or were temporarily unable to afford contributions to a health plan. The high cost of continuing coverage under Cobra, the federal rule that allows former employees to stay on health plans for a time if they pay the entire cost, “is a cruel joke to these people,” Ms. Warren said.
Even when people remain insured, the study also notes that many health plans have limits on certain kinds of coverage, like physical therapy or prescription drugs.
“If you’re sick enough long enough, you’re in deep trouble in our society,” said David Himmelstein, an associate professor of medicine at Harvard Medical School, another of the study’s authors.
While some policies do offer catastrophic coverage, which pays for care after costs reach a certain threshold, Dr. Himmelstein said that coverage “often kicks in after people are bankrupted” because they must incur high medical bills to qualify.
And employees, who often have little choice of plans and frequently do not understand the differences among plans, are increasingly offered policies with less and less coverage, some policy analysts say.
“There’s a race to the bottom in terms of what health insurance means today,” said Ron Pollack, the executive director of Families USA, a consumer advocacy group in Washington.
This area is ripe for additional research, said Uwe E. Reinhardt, a professor at Princeton University, who said that there had not been enough hard evidence about working Americans who became ill and then went broke. “We put together vignettes, but they are not powerful enough,” he said.
The findings also raise questions about the effect of asking employees to bear a greater share of health cost through higher co-payments and the like. Many employers are shifting the increasing cost of care onto their employees, arguing that that trend gives workers an incentive to make judicious use of health care. But the researchers say higher co-payments and deductibles may well exacerbate the problem of medical bankruptcies.
Cornelia Dean contributed reporting for this article.