Bankruptcies from medical debt
Medical debt is the leading cause of bankruptcy filings in the US. Although exact figures vary due to differences in data collection methods and even some of the definition of medical debt, the fact is that all studies completed since the early 2000s show it is a leading cause of personal bankruptcy.
In fact, whether it is a study from Harvard University, the Kaiser Family Foundation, the American Journal of Public Health or other sources, each of them show that medical debt causes at minimum 60% of bankruptcies. Find more details below as well as some possible solutions for low income families.
Unpaid medical bills lead to bankruptcy
A 2005 Harvard United University law study shows data from the early 2000s. The organization look at medical debt and bankruptcies shows a very large increase over the last six years in personal bankruptcy filings that are caused in large part by ever-higher medical expenses. Whether someone has insurance or not did not matter - in fact about 7% of the filings were from people with health insurance. Only 20% of those who filed bankruptcy did not have insurance.
- Those that declared bankruptcy and that had private insurance had average medical bills of almost $18,000. Compare that to people who filed for bankruptcy without any health insurance. They had medical expenses of almost $27,000. Many of these people put their bills on their credit cards, which will often have a very high interest rate associated with them. Find ways to eliminate medical and credit card debt.
- The results of the study show that medical debts, when taking in combination with the problems that result from illnesses such as lost wages for the sick and their caregivers, contributed to over 60% of all personal bankruptcies filed in 2007. It is important to note that medical expenses were not the only cause for these bankruptcies, but the study does show them being a major factor. The increase in the bankruptcy filings occurred despite a 2005 federal government law that was put into place making it more difficult for individuals to seek court protection from creditors for debts, including medical expenses. More on the study completed by Harvard University.
The American Journal of Public Health took another more extensive view of the issue in 2019. This 2019 study found that about 65% of all bankruptcies going back to the early 1990s were tied to medical issues. The study used data from Consumer Bankruptcy Project dating back to the early 1990s. The data showed a consistent 60 to 65% of bankruptcy filings in 2001, 2007, and 2013 were due to medical bills. Read the study here.
A more recent study conducted by the Kaiser Family Foundation in 2019 showed almost no progress since the Harvard report. The Kaiser study found that approximately 41% of adults in the U.S. had some form of medical debt, with around one in six adults, or about 17%, reporting difficulties in paying their medical bills. Find details on Kaiser Family Foundation medical debt study.
Another study by the Consumer Financial Protection Bureau (CFPB) in 2022 also showed that medical bills are the most common reason for collections-related bankruptcies. In fact, the number of personal bankruptcy filings due to health care costs is even higher than credit card debt and loan delinquencies. The report showed that one in five Americans have a medical debt in collections, which is a leading indicator of future bankruptcy filings. Find the details on CFPB medical debt.
Additional details on people filing bankruptcy due to medical debt
In addition to directly causing bankruptcies, medical debt often has other impacts. This includes, but is not limited too, affecting individuals' credit scores. This can leading to foreclosure or evictions, and a reduction in credit rating also makes it more difficult for people to get get additional credit.
One of the conclusions of the various studies, whether from Kaiser or Harvard, was that health insurance does not necessarily help. Having this coverage is not a guarantee that a sickness won't bankrupt a person, whether they have a low or moderate income. The primary reasons being that lots of health insurance comes with deductibles, big co-payments, and high priced uncovered services. So many people find themselves insured and still end up with big medical bills.
Get help to prevent bankruptcy from medical debts
The fact is that many hospitals, doctors, and medical professionals will not purse unpaid bills as aggressively as other creditors. Two big reasons include aggressive collection tactics by a medical provider, in particular a non-profit facility, is bad publicity for the hospital. A second reason is many doctors just do not devote as many resources towards debt collection.
This means that consumers often have time on their side as the debt may not be collected as aggressively. They may have other options available to them other than filing bankruptcy. Patients should first look into non-profit credit counseling agencies, which will take a holistic approach to dealing with medical bills and all of the other debts that someone has. Learn more on credit counseling agencies and the services they can administer.
Some bankruptcy lawyers also can help people deal with medical debt. Low-income families or those with no money to pay for legal advice can often get a free consultation. Look here for free legal advice for bankruptcy.
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