Medical Debt and Bankruptcy in the United States: Debunking the Myth

Despite persistent claims that hundreds of thousands of Americans face bankruptcy annually due to medical bills, the reality is more complex. Understanding the nuances of medical debt and bankruptcy laws in the U.S. is crucial in setting the record straight.

Understanding Bankruptcy and Medical Debt

First, it's important to clarify that 'people do not declare bankruptcy' as a blanket statement in the United States. This misconception stems from outdated laws that no longer hold true. Since 1979, the United States Bankruptcy Code has required individuals to submit a formal Bankruptcy petition. Individuals do not simply ‘claim’ they are filing for bankruptcy; they must follow a rigorous legal process.

When someone mentions filing for bankruptcy due to medical debt, they often use this phrase euphemistically to soften the accusation. It is generally less stigmatized to say one is filing bankruptcy due to medical reasons than credit card debt or vehicle repossession. However, this does not mean the medical debt is the primary cause of filing for bankruptcy.

Wage Garnishment and Medical Debt Collection

Individuals may face garnishment of their wages due to medical debt. However, few medical providers take this route, and even fewer actually succeed in garnishing wages. This is because lawsuits and wage garnishments are costly and damaging to a provider’s reputation. Providers can more profitably collect upfront or from insurance companies, thereby saving both time and resources.

Even when medical debtors do file for bankruptcy, medical debt is rarely the direct cause. According to the Office of the United States Trustee, bankruptcy petitions are filed for a wide variety of reasons, including personal finances, business failures, and unexpected medical expenses. Although medical bills can contribute to financial distress, they are often part of a larger complex of financial issues.

The Statistics and the Myths

There is no evidence to support the claim that 643,000 Americans go bankrupt every year due to medical bills. The reality is that medical debt and bankruptcy rates are significantly different. According to recent data, the American Hospital Association reports that 23 million Americans

have significant medical debt, with most owing over $1,000. Additionally, approximately 500,000 families fall into medical bankruptcy each year due to unpaid medical bills. These figures, however, do not reflect the primary cause of bankruptcy, which is often a combination of multiple factors, including job loss, sudden illnesses, and long-term debts.

The Insurance Perspective and the Rolling Scheme

Health insurance providers argue that they do not profit directly from medical bankruptcies. Instead, they benefit from the long-term consequences of their policies on a portion of the insured population who face chronic illnesses or require extensive treatment over decades. These individuals are a continuous source of profit for insurers, even though they are not directly profiting from bankruptcies or deaths.

Insurance companies are part of a larger system that includes healthcare providers and policymakers. The current framework incentivizes long-term enrollment and expensive treatment regimens, rather than addressing the root causes of medical debt and bankruptcy. This creates a complex web of interests that perpetuate the current state of affairs.

Conclusion

Medical debt and bankruptcy are serious issues in the United States, but they are not as simple as the headline-grabbing figures suggest. Understanding the legal and financial mechanisms, as well as the broader systemic issues, is essential in addressing these challenges. The statistics and the myths about medical debt and bankruptcy reveal a more nuanced and multifaceted picture than surface-level claims might indicate.