Academic

Shifting, Shelling Out, or Shirking? The Mystery of the Disappearing Medical Debts

By Alfred Brophy

Continuing in the series that Melissa Jacoby and Mirya Holman are writing on their recent paper, Managing Medical Bills on the Brink of Bankruptcy:

We?re back again on Managing Medical Bills on the Brink of Bankruptcy. Yesterday we talked about the political and policy context.  The health care finance reform debates have reignited the disputes over the measurement of medical bankruptcy.  Today we?ll show some results applying the two contested approaches (survey questions on out-of-pocket medical expense within two years of filing and court records of debt owed at the time of filing that debtors submit) to the same sample.  Bottom line: court records may be useful to assess the burden of patients? bankruptcies on health care providers, but we have concerns about the accuracy of the court record approach to gauge the burden of medical bills on patients and their families.  On the other hand, combining the approaches offers a richer picture of the dynamics of the relationship between providers and their financially-distressed patients.

Look at the overall simple distribution of the two measures in figure 2 from the paper below.

From figure 2, we can see very different patterns revealed by survey data and court records.  In the court records, positive indications of medical expense shrunk, while the ?zero? medical bill category grew.  Not much visible decline in the top category, but bear in mind that this is an open-ended category that includes some debts in the hundreds of thousands of dollars. 

Why do we see these differences?  Credit cards are a popular explanation, but we could not presume it explained the lack of congruence.  For example, maybe people paid off the bills with cash before filing and thus no longer owed any debt.  Or maybe filers forgot to list medical providers on their bankruptcy filings.  

To address these questions, we did filer-by-filer comparisons of the two measures.  We were able to test these hypotheses in part because our study asked all respondents how they dealt with recent out-of-pocket medical expense, not just respondents who indicated medical burden as many studies do.  

About a fifth of our sample reported at least $1,000 more in pre-bankruptcy medical bills on the survey than could be found as medical debt in court records; within this group, many cases had a ?discrepancy? between these measures bigger than $5,000 or $10,000.  (Note that this is not a comprehensive count of medical burden; for example, some people had over $10,000 of medical bills by both measures).  Figure 4 shows some of the ways such filers managed medical bills.  

As indicated earlier, one explanation for the incongruence between the measures might be that filers simply paid off their medical debt.   However, figure 4 shows that the likelihood of using credit cards grew as the gap between the two measures increased, while the use of cash did not.    Filers with bigger gaps between the measures also had larger general credit card debts in their court files (figure 5 in the paper). 

And check out the percentage of homeowners who report using home equity loans to pay their medical bills - the right-most column in each cluster in figure 4.   As an aside, home equity loans usually survive bankruptcy, meaning generally that the lender must be paid in full or the debtor will lose the house.   Plus, homestead exemptions protect debtors from regular medical bills and credit card debts, but not from home equity lenders.   But again, using home equity loans for medical debts make those medical debts disappear from standard court record studies.

As further evidence that the shifting of medical bills to credit products leads to a particularly distorted picture from court record studies, we report in the paper (figure 3) that people who report medical bills as a reason for filing bankruptcy also report credit card and home equity use at a much higher rate than other debtors.  Whatever the reason, the obligations are hidden more frequently in court files of those debtors who had faced significant medical bill problems.  And, as figure 6 below displays, people with the largest gaps between the measures have the highest rate of medical bill reasons for bankruptcy by far - the baseline rate of reporting a medical bill reason for bankruptcy when asked why they filed on the questionnaire was 29%.  

To be clear ? two-thirds of people with more than $10,000 in medical expenses but no medical debt on schedule F that they submitted into the court records reported that medical bills were a reason they filed for bankruptcy.  They are invisible in a court record study.

As mentioned at the outset, court records may help us understand the burden of bankruptcy on health care providers who remain creditors in these cases, but they produce a significant undercount of the burden of medical debts on patients and their families.   In discussions of health care finance reform or bankruptcy reform, members of Congress and academics should not try to debunk survey studies of filers? medical hardship with court record analysis.  

Our study has implications for health care finance and bankruptcy more generally.  We?ll talk about that next time.  Thanks for reading. 

Full post as published by The Faculty Lounge on August 05, 2009 (boomark / email).