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March 30, 2018

Just 4% of bankruptcies are caused by hospitalizations, research suggests—surprising many experts

Daily Briefing

    Researchers last week published two papers that dive into the financial effects of hospitalizations and challenge some commonly held beliefs—although other experts are pushing back on the findings.

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    The papers published in the American Economic Review and the New England Journal of Medicine are based on research conducted by Carlos Dobkin of the University of California-Santa Cruz, Amy Finkelstein of Massachusetts Institute of Technology (MIT), Raymond Kluender of MIT, and Matthew Notowidigdo of Northwestern University.

    The research draws from 11 years of data from the federal Health and Retirement Study—a nationally representative sample of people in their 50s and 60s that asked about hospitalizations, employment status, and income—as well as a sample of more than half a million U.S. adults between ages 25 and 65 who were discharged from a hospital in California between 2003 and 2007 and had credit reports available from 2002 to 2011.

    The association between hospitalizations and medical bankruptcies

    In a New England Journal of Medicine perspective, the authors wrote that their research suggests fewer personal bankruptcies are caused by hospitalizations than previously believed.

    According to Modern Healthcare, previous research has indicated medical costs played a role in more than 60% of U.S. bankruptcies. However, based on the California data, the researchers said their new study estimated just 4% of personal bankruptcies among non-elderly U.S. adults that occurred between 2002 and 2011 were related to hospital stays between 2003 and 2007.

    The researchers also found that among uninsured adults, the percentages of hospitalizations that were linked to bankruptcy was about 6%—though the researchers noted that hospitalizations tend to be lower for the uninsured population compared with the overall non-elderly population. 

    While being hospitalized did appear to increase the likelihood—by 0.004%—that a person would file bankruptcy within the next four years, the researchers said the tie is not as strong as previously believed. Kluender said the researchers' findings suggest "medical expenses are responsible for a much smaller share of them than previously thought."

    The researchers attributed that difference in part to methodology, noting that previous studies focused solely on those who had filed for bankruptcy. They wrote that without broader information on hospitalized individuals who did not file for bankruptcy, it's "impossible to infer the role of medical expenses in causing bankruptcy."

    Long-term financial effects of hospitalization

    But the overall study revealed a more shocking finding, according to Finkelstein. Those findings, which were published in the American Economic Review, showed the greater financial effect of a hospitalization occurs in the months and years following the event, when patients struggle to maintain their jobs and income level because of poor health or disability.

    On average, the researchers found hospitalizations among people in their 50s are associated with a 20% decline in employment and income over the next four years, which Finkelstein said is "just extraordinarily high." The researchers found the income losses were far greater than the direct costs of medical care.

    The researchers said this trend is important because health insurance does not cover the non-medical effects of a hospital stay, such as missed work. And for some individuals, a hospital stay can lead to an overall decline in health that could prevent them from returning to their previous job.  


    Benedic Ippolito, a health economist at the American Enterprise Institute, who has studied medical debt, said of the fact that such significant economic costs follow hospitalizations, "It makes me wonder: What exactly does insurance insure against, and is that the thing that we really want it to insure against?"

    But not everyone agrees with the takeaway. David Himmelstein—a professor at Hunter College's School of Urban Public Health, who worked on the earlier research that more than 60% of bankruptcies are tied to medical costs—said the new study's broader methodology does not accurately portray medical bankruptcy.

    Himmelstein's research surveyed individuals who had filed bankruptcy and asked them if medical costs were related to the filing. "To say that our data is wrong is to say people lied," he said. "The question really is, does illness cause bankruptcy. And they only count you as having been ill if you were hospitalized. But we know that a huge number of people who were ill were not hospitalized."

    Himmelstein also noted that the new research focused only on individuals who had been hospitalized once, leaving out the sicker population who may have multiple hospitalizations, and thus likely at a greater risk of medical-related bankruptcy (AP/Modern Healthcare, 3/22; Sanger-Katz, "The Upshot," New York Times, 3/21; Sheridan, Newsweek, 3/21; Dobkin et al., American Economic Review, March 2018).

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