Sunday, March 06, 2005

the bankruptcy bill in the Senate

As you've probably seen in the news, the Senate has been debating bankruptcy reform. Senate Bill S.256 introduces a needs-based test for bankruptcy. Much of the news coverage focused on high credit card debts, the implication being that spendthrift people were running up their credit cards and then using bankruptcy coverage to get out of the debt.

One question, though. What, exactly, were they charging to those credit cards?

If you haven't seen it yet, you might want to check out this very interesting study, which I found through the Kaiser Foundation. The authors sampled bankruptcy cases looking at whether or not high medical bills were a contributing factor. Turns out, they are.

The study created two categories of medical bankruptcies: major medical, and any medical. I'm going to focus here on the major medical category.

They define a “major medical” bankruptcy as one where the debtor

1. said illness or injury was a contributing factor, or

2. they had at least $1,000 in uncovered medical bills for each of the previous two years, or

3. they lost at least two weeks of work income because of the illness or injury, or

4. they mortgaged the house to pay medical bills.

It turns out that 46% of the bankruptcies fell into the “major medical” category. Or, if you want to be more strict about the numbers, 28% of the people going bankrupt said that illness or injury was a contributing factor.

Also, don't think you're safe just because you have insurance. 75% of the medical bankruptcy folks had medical insurance at the start of the medical condition that caused the bankruptcy. Common problems were gaps in coverage -- losing one job because of the medical problem, then not being able to get insurance at the next job because of the preexisting condition -- and lost income -- the medical condition kept them from working, either because they couldn't work or they had to take care of a family member.

Now, that's not to say that we would necessarily see the bankruptcy rate drop by half if we fixed medical coverage, since these factors tend to be interrelated, but it does suggest that the situation is a lot more complex than too many people maxing the plastic to buy that new beemer Z-series.

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