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Bankruptcy and Coverage Denied


About half of all personal bankruptcies in the United States are due to medical bills. Several studies—including two published by Harvard Medical School and the Health Affairs journal—put the number of bankruptcies due to medical causes at approximately 50 percent.

Medical bankruptcy hits the middle class. The typical person filing for bankruptcy due to medical costs is about 40 years old, with some college education, middle-class or working-class, and a homeowner.

Governor Schwarzenegger's reforms address medical bankruptcies by making coverage available to all and increasing health care affordability. The Governor’s reforms:

  • Require that all Californians carry health coverage, so they can receive regular care. This will reduce costly emergency treatments, and help patients manage chronic conditions more effectively.
  • Create a pool to help low-income Californians purchase coverage. 
  • Require insurers to cover everyone, regardless of medical history.
  • Eliminate the hidden tax, estimated at $455 per individual's premium and $1,186 for a family's premium. The hidden tax is equal to about 17 percent of all health care expenditures. Lower premiums mean greater coverage affordability.

Coverage Denied

The Governor's health care reforms guarantee that all Californians can get health care coverage. The Governor’s individual mandate requires that all Californians obtain health insurance and that insurers grant it. This puts an end to the current system, which denies Californians coverage outright or boosts premiums astronomically based on medical history.

  • Governor Schwarzenegger's reforms include a provision that guarantees an individual will be able to obtain a health insurance policy in the individual market.
  • Insurers will be required to guarantee coverage, with limits on how much they can charge based on age or health status, so that all individuals have access to affordable products.

Many Californians without job-based benefits cannot get health care coverage. Those who have pre-existing health conditions such as diabetes, cancer or heart disease—or take anti-asthma, anti-depressant, or hundreds of other medications—are often turned down when they try to purchase private health insurance, are granted only partial coverage, or offered only extremely high rates.

On the Record

Harvard Medical School Professor Himmelstein: No American is safe from medical bankruptcy. "'I think the message that we take away is, really, nobody is safe in our country. Short of (Microsoft Chairman) Bill Gates, if you're sick enough long enough, you're likely to be financially ruined,' cautioned study author Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School. 'We're all one serious illness away from bankruptcy,' he added." - Karen Pallarito, "Health Medical Problems Cause Half of Personal Bankruptcies,", 02/02/05 

Yale Professor Hacker: "One out of six working-age adults" carries medical debt. "Among insured Americans, 51 million spend more than 10 percent of their income on medical care. One out of six working-age adults—27 million Americans—are carrying medical debt, and 70 percent had insurance when they incurred it. Of those with private insurance and medical debt, fully half have incomes greater than $40,000, and of this group a third are college graduates or have had postgraduate education." - Professor Jacob Hacker, Testimony Before the Committee on Health, Education, Labor, and Pensions, United States Senate, Washington, D.C., 01/16/07

Just the Facts

  • 50 percent of U.S. bankruptcies are due to medical expenses. A recent study by Harvard University researchers found that:
  • The average out-of-pocket medical debt for those who filed for bankruptcy was $12,000.
  • 68 percent of those who filed for bankruptcy had health insurance. However, illness often leads to job loss and with it, the loss of health insurance.
  • 50 percent of all bankruptcy filings were partly the result of medical expenses.
  • Every 30 seconds in the United States someone files for bankruptcy in the aftermath of a serious health problem.
  • Families with children were especially hard hit—about 700,000 children lived in families that declared bankruptcy in the aftermath of serious medical problems.
  • The total number of people directly affected by medical bankruptcies is more than two million annually.

Source: Harvard Medical School, Press Release, "Illness and Medical Bills Cause Half of All Bankruptcies," 02/02/05

Nearly Half Of All Personal Bankruptcies Are Related To Medical Costs. "Supporters note that recent studies have found that nearly half of all personal bankruptcies in the US are related to medical causes, that those facing bankruptcy due to medical costs face average out-of-pocket costs of nearly $12,000, and that over 75 percent have health insurance at the onset of their illness." Source: Senate Bill 840, Senate Rules Committee, Senate Floor Analysis, 5/24/05

Medical Debt "Surprisingly Common." "Medical debt is surprisingly common, affecting about twenty-nine million non-elderly adult Americans, with and without health insurance. The presence of medical debt, even for the insured, appears to create health care access barriers akin to those faced by the uninsured. Policymakers, researchers, and medical providers should consider medical debt a risk factor for reduced health access and poorer health status. Simply reducing the number of uninsured Americans would be a hollow policy victory if the problems arising from medical debt persist." Source: Robert W. Seifert and Mark Rukavina, "Bankruptcy Is The Tip Of A Medical-Debt Iceberg," Abstract, Health Affairs Journal, 25, No. 2 (April/May 2006)

One in six privately insured adults reports "substantial" difficulty paying medical bills. "Health insurance is no longer a guarantee of financial protection from the cost of health care for many … One in six adults who are privately insured – 17.6 million adults – reported having substantial problems paying their medical bills … Over 58 million adults in this country are at higher risk of incurring medical bills they may not be able to afford." Source: Catherine Hoffman, Diane Rowland, Elizabeth C. Hamel, "Medical Debt and Access to Health care," Report, Kaiser Commission on Medicaid and the Uninsured, September 2005

21 percent of working Americans have medical debt to pay off. One-fifth (21 percent) of working people, both insured and uninsured, currently have medical debt they are paying off over time. More than two of five (44 percent) of these individuals are carrying $2,000 or more in debt. Source: Commonwealth Fund, "Why Not the Best? Results from a National Scorecard on U.S. Health System Performance," Report, September, 2006

Medical debt pushes average credit card debt 50 percent higher. The average credit card debt among indebted low- and middle-income households in the U.S. is nearly 50 percent higher when the household carries medical debt. Source: Cindy Zeldin and Mark Rukavina, "Borrowing to StayHealthy: How Credit Card Debt Is Related to Medical Expenses," Demos, 2007

Californians are denied coverage based solely on their jobs and the medicines they take. “Health insurers in California refuse to sell individual coverage to people simply because of their occupations or use of certain medicines, according to documents obtained by The Times. Entire categories of workers—including roofers, pro athletes, dockworkers, migrant workers and firefighters—are turned down for insurance even if they are in good health and can afford coverage.” Source: Lisa Girion, “Health Insurers Deny Policies In Some Jobs,” Los Angeles Times, 1/08/07

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All Californians are Hurt by our Broken Health Care System

Every insured Californian pays a "hidden tax" in the form of higher premiums to subsidize health care for those who can't, or won't get health insurance.
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did you know?
The hidden tax constitutes 17 percent of health care premiums in california and equals $455 annually for a single person's premium and $1,186 for a family's premium. Medi-Cal underfunding contributes another 7 percent to the hidden tax.