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Does being uninsured lead to bankruptcy?

One of the favorite arguments that liberals like to make when arguing for socialized medicine is that it would protect the most “vulnerable” of us from bankruptcy. Over at Critical Condition @ NRO, Hans Kuttner posts an interesting graph that shows the trends of the population, uninsured and bankruptcy filing from 1999-2008:

Graph showing correlation between population growth, number of uninsured and bankruptcy filings from 1999-2008.

As you can see from the graph, you can see that both the population and the number of uninsured are moving in upward, but stable, trajectory where as the bankruptcy filings had an erratic trajectory over the same period. This could be due to a variety of factors: the dot com bubble bursting, 9/11, a relative period of prosperity (despite what the Left says, America did pretty well under Bush), and the signing of tougher bankruptcy laws in 2005 by President Bush. Hardly anyone can point to this and say that any of this is due to “medical bills”. Kuttner points to a study conducted by David Himmelstein and comes to a conclusion that I have long stated:

“Another source of slipperiness comes in tying the evidence together. What most people call “health insurance” is medical-expense insurance, not insurance against the financial consequences of changes in your health. The evidence, including the most recent study by a team lead by David Himmelstein, a long-time advocate of national health insurance, shows that having something go wrong with your health can bring about bad things, including bankruptcy. Why? For most Americans, the income that comes from working is the almost-total source of their income. If something happens that has an impact on their ability to work, they are in big trouble. That would not be true if people had more savings. Among Americans in the lowest quartile of net worth, the median amount of financial assets was $1,100 in 2007.”

For the most part, this is a true statement. Medical bills themselves do not cause people to go into bankruptcy, but not being able to work does cause people to go into bankruptcy. Let me back up for a moment and categorically state there are only two reasons why people file bankruptcy. The first instance that a person files for bankruptcy is when the amount of his debts exceeds the amount of assets (which includes income) he possesses such that it makes sense that he files for bankruptcy to get a fresh start. I had gone through this and my wife has gone through this. The second instance a person files for bankruptcy is that a person is no longer able to work such that he cannot bring in income to cover the mounting debts he is accruing. I suspect that this is the situation that most people who have medical maladies end up in. No one should expect that socialized medicine will solve this problem. Indeed, there is real world evidence in countries that practice socialized medicine that personal bankruptcy rates are higher than they are here in the U.S. One reason this is so is because in countries that practice socialized medicine people have to wait much longer than their U.S. counterparts to get treatment for maladies that can threaten work time. If you have to wait to get treatment, that of course increases the likelihood that the problem will get worse, causing a person not to work and therefore forcing that person to file bankruptcy.

A way to help out people who will be hit with unexpected medical bills would be to make the tax code more forgiving of saving money and buying insurance to cover these uncertain events. Another thing that can help out the market is more competition, not less. On a slightly different topic, James Glassman makes the case why competition is important in the biogenerics market:

“It’s hard to reconcile these three goals (in socialized medicine) — and impossible by government diktat. But there is a mechanism that works in other sectors (think consumer technology, for example) that can achieve broader reach, higher quality, and lower costs. It’s called competition.”

Does the Obamacare bill being bandied about make it easier for people to save money and buy insurance to cover uncertain events and make the healthcare market more competitive or less competitive?

That being said, I have always wondered why people find it morally wrong to go into bankruptcy because of their health but it is not morally wrong to go into bankruptcy to save your house. In either situation the only thing lost are some assets and a hit to your creditworthiness. However, you get to start over in each instance. I would think that it would be better to go into bankruptcy to save your health than it is to save your house. After all, if you aren’t going to risk it all to save your life, do you truly value your own life?

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