Medical illness can be a financial nightmare leading to bankruptcy. Illness and medical bills contributed to more than half of bankruptcy filings, a new report shows.

“Illness often leads to financial catastrophe through loss of income, as well as high medical bills,” writes researcher David U. Himmelstein, MD, professor of medicine at Harvard medical School. “Disability insurance and paid sick leave are critical to financial survival of a serious illness.”

His report provides the first extensive data on medically related bankruptcy, Himmelstein writes in the journal Health Affairs. Previous studies have looked only at court records, where medical debts may be hidden in credit card or mortgage debt, he explains. Study of this widespread problem has also been impeded by debtor’s hesitation to discuss their bankruptcy. In surveys, only half of those who have gone into bankruptcy admit to it, writes Himmelstein.

His study is based on a survey of debtors in bankruptcy courts -- a total of 1,771 bankruptcy filers. Of those, 931 bankruptcies were due to medical circumstances. Those citing medical causes were interviewed in depth regarding the medical diagnosis, health insurance, medical care, and expenses.

The study is “frightening,” Himmelstein says, in a news release.

“Most were average Americans who happened to get sick,” he says. “Health insurance offered little protection. Families with coverage faced unaffordable co-payments, deductibles, and bills for uncovered items like physical therapy, psychiatric care, and prescription drugs. And even the best job-based health insurance often vanished when prolonged illness caused job loss -- precisely when families needed it most. Too often, private health insurance is an umbrella that melts in the rain.”

His report shows that during the two years prior to filing for bankruptcy:

--40 percent lost telephone service

--19 percent went without food

--54 percent went without needed doctor or dentist visits because of cost

--43 percent did not fill prescriptions because of cost

--15 percent had taken out second or third mortgages to pay for medical expenses

--1/3 continued to have problems paying their bills following bankruptcy, including paying their mortgage/rent and utility payments

Even after filing for bankruptcy, a number (3.1 percent) were turned down for jobs, 5 percent were turned away on apartment rentals, and 9 percent were rejected for car loans

The debtors’ narratives “painted a picture of families arriving at the bankruptcy courthouse emotionally and financially exhausted, hoping to stop the collection calls, save their homes, and stabilize their economic circumstances,” he writes. “Several had used credit cards to charge medical bills they had no hope of paying.”

Many debtors blamed high co-payments and deductibles for their financial ruin. One man, working for a large company that provided insurance, suffered a broken leg and torn knee ligaments. He had $13,000 in out-of-pocket expenses for co-payments, deductibles, and uncovered services -- much of it for physical therapy, writes Himmelstein.

“Even good employment-based coverage sometimes fails to protect families, because illness may lead to job loss and the consequent loss of coverage,” he explains. “Lost jobs, of course, also leave families without health coverage when they are financially most vulnerable.”

Also, many insured families are bankrupted by medical expenses well below the “catastrophic” thresholds of high-deductible plans, Himmelstein notes.

By Jeanie Lerche Davis, reviewed by Brunilda Nazario, MD

SOURCES: Himmelstein, D. Health Affairs Web Exclusive, Feb. 2, 2005. News release, Harvard Medical School.