PERSPECTIVE The Case of Medical Bankruptcies The Case of Medical Bankruptcies Myth and Measurement — The Case of Medical Bankruptcies Carlos Dobkin, Ph.D., Amy Finkelstein, Ph.D., Raymond Kluender, B.S., and Matthew J. Notowidigdo, Ph.D.​​ uring the push to pass the enced health-related financial college dropouts who have al- DAffordable Care Act, Presi- stress such as substantial medi- ready became technology billion- dent Barack Obama often de- cal bills or income loss due to aires rather than all college drop- scribed the “crushing cost of health illness. People were also asked outs, this analysis misses the fact care” that was causing millions of whether they went bankrupt be- that most college dropouts do not Americans to “live every day just cause of medical bills. People who go on to lucrative careers in the one accident or illness away from reported any of these events were tech business. A similar problem bankruptcy” and repeatedly stat- described as having experienced pervades the current literature on ed that the high cost of health a medical bankruptcy. This ap- medical bankruptcy. The studies care “causes a bankruptcy in proach assumes that whenever a mentioned above examine the America every 30 seconds.” Sto- person who reports having sub- experiences only of people who ries of illnesses and injuries with stantial medical bills experiences went bankrupt, but it is impossi- financial consequences so severe a bankruptcy, the bankruptcy was ble to infer the role of medical that they caused households to caused by the medical debt. The expenses in causing bankruptcy file for bankruptcy were used as fact that, according to a 2014 re- without information on the pro- a major argument in support of port from the Consumer Finan- portion of the population with the 2010 Affordable Care Act. And cial Protection Bureau, about 20% large medical expenses that did in 2014, Senators Elizabeth War- of Americans have substantial not go bankrupt. ren (D-MA) and Sheldon White- medical debt, yet in a given year To estimate the share of bank- house (D-RI) cited medical bills less than 1% of Americans file for ruptcies actually caused by medi- as “the leading cause of personal personal bankruptcy, suggests that cal factors, we therefore selected bankruptcy” when introducing the this assumption is problematic. a sample of people who were ad- Medical Bankruptcy Fairness Act, Clearly, many people face medi- mitted to the hospital in Califor- which would have made the bank- cal debt but do not go bankrupt. nia and tracked information on ruptcy process more forgiving for Even after correction for overly their annual credit reports, includ- “medically distressed debtors.” broad definitions of “medical” ex- ing whether and when they filed But it turns out that the existing penses,3 the existing, widely cited for bankruptcy. Because we ex- evidence for “medical bankrupt- evidence on medical bankruptcy amined the relationship between cies” suffers from a basic statis- is built on the fallacy that when when people go to the hospital tical fallacy; when we eliminated two things occur together there is and the timing of any bankrupt- this problem, we found compel- necessarily a causal relationship cy, we were able to estimate the ling evidence of the existence of between them. increase in bankruptcy filings medical bankruptcies but discov- To understand the problem, caused by illness or injury, rather ered that medical expenses cause consider an analogous line of in- than the fraction of people filing many fewer bankruptcies than quiry: suppose we want to know for bankruptcy who happen to has been claimed. which factors increase a person’s have substantial medical expenses. Policymakers’ beliefs about the chances of becoming a technolo- Our study was based on a ran- frequency of medical bankruptcies gy billionaire. Investigation of re- dom stratified sample of adults are based primarily on two high- cent technology giants might sug- 25 to 64 years of age who, between profile articles that claim that gest that dropping out of college 2003 and 2007, were admitted to medical events cause approximate- is a high-return strategy (think: the hospital (for a non–pregnancy- ly 60% of all bankruptcies in the Bill Gates, Steve Jobs, and Mark related stay) for the first time in United States.1,2 In these studies, Zuckerberg [dropping out of Har- at least 3 years. We linked more people who had gone bankrupt vard seems to have a particularly than half a million such people were asked whether they’d experi- high payoff]). By examining only to their detailed credit-report rec- 1076 n engl j med 378;12 nejm.org March 22, 2018 The New England Journal of Medicine Downloaded from nejm.org at MIT LIBRARIES on March 22, 2018. For personal use only. No other uses without permission. Copyright © 2018 Massachusetts Medical Society. All rights reserved. PERSPECTIVE The Case of Medical Bankruptcies ords for each year from the peri- od 2002–2011. The graph shows 0.044 the results of our analysis. The results show a clear effect 0.042 of hospital admission on bank- ruptcy: the rate of bankruptcies 0.040 rises sharply in the years after hospital admission, and this 0.038 change is statistically significant (at conventional levels) both 1 and 0.036 4 years after the admission, after for Consumer Bankruptcy Proportion of People Who Filed which bankruptcies appear to lev- 0.034 el off. This finding indicates that 0.000 the expenses that result from the −4 −3 −2 −1 0 1 2 3 4 5 6 illness or injury that caused the Years before or after Hospitalization hospital admission — for exam- ple, out-of-pocket medical costs The Effect of Hospitalization on the Likelihood of Filing for Bankruptcy. and lost labor income — cause The x axis shows time relative to the index hospital admission. Each data point rep- some people to file for bankrupt- resents the proportion of people who filed for personal bankruptcy between the year before the start of our credit-report data and the indicated date, after adjustment for cy. However, the magnitude of the any patterns in bankruptcy rates by calendar year. The dashed line shows the esti- bankruptcy effect is much small- mates from fitting a flexible, nonlinear function quantifying the relationship between er than previously thought: we es- the timing of hospital admission and the bankruptcy rate, again with adjustment for timate that hospitalizations cause calendar-year trends. (More detail on the sample and estimators can be found in 4 only 4% of personal bankruptcies Dobkin et al. ) among nonelderly U.S. adults, which is an order of magnitude hospitalizations are responsible scribed elsewhere, recent related smaller than the previous esti- for only 6% of bankruptcies4; for research using different sample mates described above. this population, the effect of a populations (but also using large We calculated this estimate as hospitalization on the likelihood administrative data sets and a follows: the graph shows that, of bankruptcy is (not surprising- similar research design) also re- on average, a hospitalization in- ly) larger, but the hospitalization vealed a limited effect of health creases the annual probability of rate is lower than in the overall shocks on bankruptcy rates.4 going bankrupt in the following nonelderly population. Perhaps most obviously, our 4 years by 0.004. Multiplying this Of course, these results do not analysis excludes illness and in- figure by the annual hospitaliza- cover all potential medical bank- juries that do not result in a hos- tion rate of 7.8% for our popula- ruptcies. They do not consider pital admission. However, our tion (which we calculated using hospitalizations for children or sample of hospitalized people is the 1999–2010 Medical Expendi- for the elderly — although in oth- likely to include most people with ture Panel Survey) reveals that er work we found that hospital- large medical expenses: in the 0.031% (0.004 × 0.078) of the pop- izations have no effect on bank- Medical Expenditure Panel Survey, ulation goes bankrupt each year ruptcy rates among the elderly.4 we estimated that about 63% of as the result of a hospitalization. Our results are also specific to people in the top 5% of annual Given that the annual household our population — people in Cali- medical spending (at least $8,433) bankruptcy rate is 0.8% among fornia hospitalized for non–child- had had a hospitalization in that the nonelderly,4 hospitalizations birth-related conditions who have year. This finding suggests that cause about 4% (0.031 ÷ 0.8) of not had a hospital admission in focusing on hospitalized people bankruptcies among nonelderly the previous 3 years (although they probably does not lead to vast adults. A similar calculation for a may, and often do, have additional underestimation of the effect of subsample of uninsured adults re- admissions over the subsequent all illness and injury on bank- veals that even in that population, years). However, as we have de- ruptcy rates. n engl j med 378;12 nejm.org March 22, 2018 1077 The New England Journal of Medicine Downloaded from nejm.org at MIT LIBRARIES on March 22, 2018. For personal use only. No other uses without permission. Copyright © 2018 Massachusetts Medical Society. All rights reserved. PERSPECTIVE The Case of Medical Bankruptcies Our results also do not speak bankruptcies than has previously tributors to bankruptcy. Health Aff (Mill- wood) 2005; 24: Suppl Web Exclusives: W5- to the financial costs of hospital been claimed. Overemphasizing 63–W5-73. admissions outside the bank- “medical bankruptcies” may dis- 2. Himmelstein DU, Thorne D, Warren E, ruptcy-filing decision. We have tract from an understanding of Woolhandler S.