{"id":314942,"date":"2010-02-12T19:12:37","date_gmt":"2010-02-13T00:12:37","guid":{"rendered":"tag:business.theatlantic.com,2010:\/\/3.35920"},"modified":"2010-02-12T19:16:05","modified_gmt":"2010-02-13T00:16:05","slug":"a-little-more-about-medical-bankruptcy","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/314942","title":{"rendered":"A Little More About Medical Bankruptcy"},"content":{"rendered":"

I want to talk a bit more about why I dislike the Himmelstein et. al. study<\/a> that found more than half of all bankruptcies were due to medical reasons.  There are a few reasons that I don’t find their work very convincing.  First, the rate of respondants attributing the bankruptcy to medical problems was more in line with other studies I’ve seen, at 30-40%.  The extra folks come from their addition of, for example, people who had medical bills that total 5% of income.  Now, having medical problems is one of the most socially acceptable reasons for bankruptcy (compared to other major causes like divorce, overspending, or a gambling or drug addiction, so we’d normally expect people to overemphasize the medical problems compared to other factors.<\/p>\n

They also had a pretty low response rate, which isn’t exactly
\nsurprising, but of course, when you’ve got a response rate well under
\n50%, you have to worry quite a bit about selection bias.<\/p>\n

But the
\nbiggest problem is the timing.  They conducted the study over a period
\nthat roughly corresponds with the first quarter of 2007.  This probably
\ndoesn’t mean anything to most of you, but in 2005, Congress enacted a
\nbankruptcy reform that went into effect in late autumn.  Partly due to
\nthe press hype, which exaggerated how hard it was going to be to file
\nbankruptcy in the future, people freaked out.  Anyone who even thought
\nthey might file bankruptcy, rushed to do so before the law took effect. 
\n The result was a giant spike, and then an even more giant drop.<\/p>\n

The
\n paper sort of deals with it, but all they say is that there’s no
\ndifference between the people who filed in 2007, and previous filers.  I
\n have no idea how they can say this, since this is actually the subject
\nof their study–if we had really good data on the average percentage of
\nmedical bankruptcies, they wouldn’t be studying the question.<\/p>\n

Here’s
\n their explanation:<\/p>\n

BAPCPA’s effects appear
\nnonselective(7).  Current filers differ from past ones mainly in having
\nstruggled longer with their debts.  New restrictions fall equally on
\nmedical and nonmedical bankruptcies, with no preferences for medical
\ndebts or sick debtors.<\/p><\/blockquote>\n

But that’s not quite what the
\n paper they cite says; it only studies income and assets, not other
\ncharacteristics of the debtors.  And there are a number of reasons that
\nthe law might have favored sick debtors:  sick debtors might have found
\nit easier to meet the means test; the new law tinkered with the rules
\nsurrounding secured debt like auto payments, which made it relatively
\nmore attractive for people with unsecured debts like medical bills to
\nfile; and people with medical bills might find it harder to time their
\nbankruptcies.<\/p>\n

Now, maybe none of these things did affect the
\nsample.  But I don’t think you can look at the first quarter of 2007 and
\n say this is a period from which you want to draw broad generalizations
\nabout bankruptcies:\"Bankruptcies.png\"<\/a>You’re still in an
\n atypical period after a huge shock to the system.  Now, maybe there was
\n no difference between those who rushed to file, and those who didn’t. 
\nBut I wouldn’t want to bet on that.  And I can tell a plausible story
\nwhere the people with medical problems can’t or won’t engage in the kind
\n of strategic behavior that lets people either predict, or stave off
\nbankruptcies . . . which makes me wonder why they chose the period they
\ndid.  Everyone I interviewed at the time made it very clear that they
\nthought we were in an atypical period . . . this was the pro-debtor<\/i>
\n story, because if bankruptcy rates stayed low, it meant that there had
\nindeed been a fair number of strategic bankruptcies, as the banker’s
\nassociations had been arguing.<\/p>\n

They didn’t stay low, as you can
\nsee; the data runs only to June 2009, but there’s little doubt they’re
\nstill mounting.<\/p>\n

Now look at the “clinical findings” section of
\ntheir paper:<\/p>\n