Consumer Choice Matters-Shoots from the Grassroot Institute of Hawaii – Feb. 8, 2005

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”’GRIH Comment: Below is an analysis of a press release a week or so ago about bankruptcy caused by medical problems. Author Greg Scandlen of Galen Institute is one of the top health care analysts in the nation. Key point is the current non-portability of medical insurance. Another is more medical savings accounts needed. Current Hawaii law does much to exaggerate these two problems. (ror)”’

Medical Bankruptcy


A new article in “Health Affairs” has been burning up the airwaves and
print media across the country. The article
by David Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie
Woolhandler is summarized in the media as revealing
that half of all bankruptcies in the United States are caused by medical
problems, especially inadequate insurance

That is certainly an attention-grabbing headline, and the fact that the
authors are associated with the Harvard
Medical and Law Schools gives the article an air of authority. But the
article is so biased as to be worthless
in even identifying a problem and so grossly exaggerated that it buries
rather than illuminates what may very well
be a real problem.

Most of the media reports seem to be based on a press release issued by
Doctors Himmelstein and Woolhandler on
Harvard stationery. It is headlined, “Illness and Medical Bills Cause
Half of All Bankruptcies – 2 Million Americans
Financially Ruined Each Year,” and goes on in a similar vein explaining:

“According to study co-author Dr. Steffie Woolhandler, an Associate
Professor of Medicine at Harvard and primary
care physician in Cambridge, Massachusetts: ‘We need to rethink health
reform. Covering the uninsured isn’t enough.
We must also upgrade and guarantee continuous coverage for those who
have insurance. Only national health insurance
can do that. But we’re headed in the wrong direction. An increasing
number of employers and politicians are peddling
phony insurance – stripped-down plans so riddled with co-payments,
deductibles and exclusions that serious illness
leads straight to bankruptcy. We need real health security, not
counterfeit coverage.'”

The material accompanying the press release includes a state-by-state
breakdown of the problem in 2004, even though
the article is based on only 1,700 cases filed in 2001 in just five
different courts (out of 77). The five districts
(California, Illinois, Pennsylvania, Tennessee, and Texas) were chosen,
not because they are representative of
anything but because that is where they found federal judges who would
cooperate with them in gathering bankruptcy

It’s a wonder what one can do with extrapolation. In the state-by-state
breakdown, the authors say there were 20,945
Medical Bankruptcies in Alabama in 2004, and they have similar numbers
for each of the 50 states, plus Washington,
D.C. (978 medical bankruptcies), Guam (183), the Northern Mariana
Islands (7), and other territories. This level
of precision is intended to forestall any further discussion, even
though the authors never looked at a single
instance of bankruptcy in Alabama, D.C., Guam, or in 69 other
jurisdictions. And, remarkably, in every single state
or territory, the rate of medical bankruptcies ran just about 50% of the
total. There were no outliers or exceptions.

The authors claim that having health insurance didn’t stave off
bankruptcy. They say in the press release that
people with insurance at the start of an illness incurred out-of-pocket
costs of $13,460 while those uninsured
had $10,893 in OOP costs. Hence, Dr. Woolhandler’s conclusion that
“covering the uninsured isn’t enough.”

Doctors Woolhandler and Himmelstein are cofounders of Physicians for a
National Health Program so it is not surprising
they should conclude we need a national insurance plan. But according to
the article, being on Medicare or Medicaid
is no protection against “medical bankruptcy.” They don’t bother to give
the number of people surveyed who were
on these public programs at the time of their bankruptcy, but they do
list the amount of out-of-pocket debts incurred
by those on the programs.

Withholding the enrollment information about the study population is one
example of the poor scholarship presented
in this article. They claim to have collected demographic information,
but they present only medians for age, income,
homeownership and occupation, not a breakdown.

But the greatest flaw in the study is the way it defines “Major Medical
Bankruptcy.” The authors define it as meaning
anyone who declared bankruptcy and had at least $1,000 in “medical
debts,” OR were off the job for two weeks due
to an illness. These conditions didn’t have to cause the bankruptcy or
even contribute to it. They could be merely
incidental to someone declaring bankruptcy.

Undoubtedly some families do indeed have a problem when they get sick or
injured, lose their jobs, and lose their
health insurance as well. But this article provides absolutely no
information about those families. Their real
plight is lost in an effort to exaggerate and overstate the case. All
credibility is lost in the hyperbole.

But solutions to these problems are not hard to find. Putting everyone
on Medicare clearly is not the solution
since their conclusion shows that Medicare is no protection against
bankruptcy. But enabling people to own their
own insurance plan would help. That would allow people to keep their
coverage even when they become too ill to
work and lose their job, and keep their health insurance along with it.

But the best remedy might be widespread adoption of Health Savings
Accounts (HSAs). People who are able to save
money in an HSA while they are healthy will have a nest egg to fall back
on when they become ill and incur extraordinary
medical expenses, or when they lose their job and have to pay their own

President Bush’s proposal to create refundable tax credits to help
lower-income people afford health insurance
coverage would help, too. Those people who can no longer work and enjoy
the benefit of an employer subsidy would
be able to get help from the federal government instead.

So, we can be grateful that the authors have published this article.
Though it is grossly exaggerated, it does
call attention to a need for which consumer driven health care is the
much better solution.


Please send all comments/questions directly to me at

”'”Consumer Choice Matters” is a free weekly newsletter published by the Galen Institute, a not-for-profit public policy organization specializing in research and education on health policy. For more information, visit its Web site at:”’

”’This editorial is intended to provoke thought, discussion and an examination of issues. It does not reflect official policy of the Grassroot Institute of Hawaii. See the GRIH Web site at:”’

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Daily Policy Digest


Monday, Feb. 7, 2005

Taking a page from Bush’s ownership society, Florida is reforming its Medicaid system through personal choice and individual accounts, according to the Wall Street Journal.

This is how Florida