Bankruptcies, Home Losses Tied To Failed Health Care System

More than half a million families who own homes will file for bankruptcy this year because of illness and medical bills, according to a new study by the Physicians for a National Health Program (PNHP). The study will be published in the August issue of the American Journal of Medicine. PNHP, a membership organization of over 16,000 physicians, supports a single-payer national health insurance program. 

Himmelstein D, Thorne D, Warren E, Woolhandler, S. National bankruptcy in the United States, 2007: results of a national study. American Journal of Medicine. [August: prepublication] Available online at http://www.pnhp.org/new_bankruptcy_study or through the American Journal of Medicine, aimmedia@elsevier.com (212) 633-3944. 

The PNHP study was a broader look at medical bankruptcy: Medical Bankruptcy in the United States, 2007: Results of a National Study. (But because we’re a real estate blog, we’re especially considering the real estate implications of the study.)

The study looked at bankruptcy data from 2007. It found that:

  • Illness and medical bills were a cause of at least 62.1% of all personal bankruptcies that year.
  • Based on the current bankruptcy rate (expected to reach 1.4 million in 2009), the study’s authors project that medical bankruptcies will total 866,000.
  • The proportion of bankruptcies attributable to medical problems rose by 49.6% between 2001 and 2007.

Surprisingly, most of those bankrupted by medical problems had health insurance. More than three-quarters (77.9%) were insured at the start of the bankrupting illness, including 60.3% who had private coverage. Most of the medically bankrupt were middle class before their financial problems. Two-thirds (66.4%) had owned a home.

Out-of-pocket medical costs averaged $17,943 for all medically bankrupt families ($26,971 for uninsured patients, $17,749 for those with private insurance at the outset, $14,633 for those with Medicaid, $12,021 for those with Medicare, and $6,545 for those with VA/military coverage).

Among common diagnoses, nonstroke neurologic illnesses such as multiple sclerosis were associated with the highest out-of-pocket expenditures (mean $34,167), followed by diabetes ($26,971), injuries ($25,096), stroke ($23,380), mental illness ($23,178), and heart disease ($21,955).

Bottom line (according to an accompanying Q&A paper): “It appears that health insurance offers only modest protection against medical bankruptcy.” And from the study itself: “Being uninsured at filing did not predict a medical cause of bankruptcy.”

Among the items that did predict the filing of medical bankruptcy: a gap in coverage, older age, marriage, being female, larger household, and lower income quartile.

The study concludes: “The US health care financing system is broken, and not only for the poor and uninsured. Middle-class families frequently collapse under the strain of a health care system that treats physical wounds, but often inflicts financial ones.”

While the study didn’t get into the real estate implications, other than to observe that 66.4% had owned a home, it would appear that a steady stream of foreclosures will continue–in fact, increase–regardless of what Congress or the Administration does if those actions only address lending practices or other specific real estate issues. What appears to be needed, from my reading of the implications of the report, is a multimodal approach that addresses the underlying causes of bankruptcies. And that includes . . . well, I was going to say a restructuring of the health care system, but maybe something more radical is needed. After all, to borrow a phrase from the last Presidential election, stopping at a so-called restructuring might be akin to putting lipstick on a pig.

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