Medical care costs can bring an American family to financial collapse

Medical science has flowered beyond the wildest dreams of earlier generations, yet sickness and injury remain a major threat to the economic health of every middle-class family. The two components of that threat - either of which can plunge a family from comfortable circumstances to financial collapse in a matter of months - are the spiraling cost of medical care and the loss of income because of accident, illness, or disability.

The first element - cost - has preoccupied policymakers and the media. Medical costs have burgeoned, especially in the past decade, at the same time that job security, including medical insurance benefits, has declined. A diagnosis of a malignancy or a sudden crash at an intersection can leave a family economically devastated by the costs of medical care.

In one year, over nine million families spent more than 20 percent of their annual incomes on medical care. These blows were by no means limited to the poor. Among the mostly higher income households that itemized their deductions on their federal income tax returns for 1991, more than five million families claimed deductions for extraordinary medical expenses.

The second threat to the economic lives of middle-class Americans - the loss of income that arises from illness and accidents - has received less public discussion in recent years, yet millions of Americans lose their jobs as a result of disability or lose substantial income during their recovery from an illness or accident. More than six hundred million workdays are lost annually for those reasons. Our data suggest that the loss of income and employment is even more devastating financially than the direct cost of medical care.

In combination, medical costs and lost income are frequently lethal to the financial survival of previously secure members of the American middle class. If the debtors in our sample are representative of the entire country, medical problems were an important part of more than a quarter of a million bankruptcies in 1998. Approximately one household in five in our sample listed a medically related problem as a reason for their bankruptcy filing, making it the third most common reason listed, after job loss and family problems.

Although more recent data from a 1997 study in Ohio yield a similar result, we have some evidence that these problems may have increased during the past decade. That increase may explain in part the dramatic rise in bankruptcies in recent years.

Among the families in bankruptcy who reported medical problems as reasons for their failures, about 60 percent (11.4 percent of the sample) cite the income effects of illness or injury. They identified injury or illness as causing lost time from work, reduction in hours worked, and demotion and job termination. The results are smaller incomes and financial collapse. Taking consumer bankruptcy as the pathology of middle-class finance, the lack of income support during illness or after injury, and the lack of rehabilitation and retraining after recovery, may be even more important causes of financial distress than specific medical costs.

The costs of medical treatment and the loss of income following illness or injury together threaten a double whammy for middleclass Americans. Jerold Lee Mumford, a 66-year-old widower from San Felipe, California, may have summed up the interrelated causes for bankruptcy as succinctly and completely as any of the debtors: "Bad planning, bad decisions, bad luck, bad health." Our report on the impact of medical problems begins with an overview of debtors' responses, followed by a discussion of the two major medical causes of bankruptcy: medical costs and loss of jobs and income. We also look at the differing effects these problems might have on different types of people, including women, minorities, and the aged.

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Medical care costs can bring an American family to financial collapse

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