Experts Disagree On Medical Debt and Bankruptcy

Medical debt has been overblown as the cause for bankruptcy filings despite widespread media coverage of studies propounding that point of view, according to testimony to a Congressional committee this week exploring the topic.

Professor Todd. J. Zywicki told the U.S. House Judiciary Committee Tuesday that medical bankruptcies are “not creating any sort of crisis for the bankruptcy system or that the percentage of medical bankruptcies has been rising over time.” Zywicki noted that 54 percent of those that filed for bankruptcy reported no medical debt, according to a study of 5,203 bankruptcy cases filed from 2000 to 2002 conducted for the Department of Justice. And 90 percent of the bankruptcy filers reported medical debt of less than $5,000, said Zywicki, a law professor at George Mason University.

The committee also heard testimony Elizabeth Warren, a Harvard law professor and co-author of the widely-cited 2005 study that found that 46 percent of all families that file for bankruptcy do so in the aftermath of a serious medical problem. Warren based much of her research on a consumer bankruptcy study and phone survey from 2001.

Warren stood by her findings, noting that medical debts often were the primary or secondary cause for extreme financial difficulties that led to bankruptcy. Many consumers that file for bankruptcy put medical expenses such as hospital bills, prescription drug costs, and doctor’s bills on their credit card. That may skew results to appear as if credit card debt was the primary cause of a bankruptcy filing, according to Warren.

At this time, there are no impartial statistics that prove either Warren or Zywicki correct, according to an official from the Justice Department’s division that oversees the bankruptcy system. “[Our office] does not have definitive data on the amount of medical debt owed by consumer debtors who seek bankruptcy relief,” said Clifford J. White, director of the Executive Office for U.S. Trustees. White provided data that indicated medical debt was a factor in filings but acknowledged the data “would not have identified medical debts charged on credit cards, placed with collections agencies, or paid prior to a bankruptcy filing.”

White said the Trustees office is working on an automation system that may better break out data on bankruptcy causes.