Can A Health Care Overhaul Reduce Medical Bankruptcy?

March 22nd, 2010 by Reed Allmand

The Obama administration and legislators are currently debating the feasibility of health care reform. Senate majority Leader Harry Reid made an interesting observation about how medical debt often influences a debtor’s decision to file for bankruptcy:

“In 2008, about 750,000 bankruptcies were filed. About 70 percent of those bankruptcies were filed because of health care costs. Eighty percent of the people who filed for bankruptcy because of health care costs had health insurance. America is the only country in the world where if you get sick or hurt, you’re going to have file for bankruptcy.”

Many people who were otherwise financially secure and responsible have been forced into bankruptcy due to overwhelming medical debt.  Many of those people, as Senator Reid suggested, had medical insurance.  How many times have Americans found themselves with a medical bill when they thought they were covered? This is especially prevalent with poorer Americans who depend on cheap “emergency” medical coverage that doesn’t cover them fully.  Many people with inadequate insurance end up getting sick and getting hit with medical debt they can’t pay.  The vast majority of them struggle to pay the medical debt anyway and jeopardize other things in their lives such as their home because they are late paying their mortgage or the future because they pay medical debt instead of funding a retirement account.    The problem with medical debt is that it is not “sized” for the average person with an average salary.  How many people can cough up $40,000 or even $3,000?  Not many.  When hit with a large bill the average person is better off filing bankruptcy.  But, what if an overhaul of the health care system included a system of medical debt forgiveness for low-income and moderate income Americans?  A medical debt forgiveness program alone could go a long way in reducing the number of people filing bankruptcy because of medical debt.