Bankruptcy From Medical Expenses

The American Journal of Medicine has published a study on bankruptcy due to medical expenses in 1977. Presumably the problem is worse now due to  the recession. The study found that 62% of bankruptcies in the United States were for medical causes with the share attributed to medical causes raising 50% between 2001 and 2007.

This was found to be far more than a problem of the poor and uninsured. Three fourths of those declaring bankruptcy for medical reasons had insurance, and most were well educated middle class individuals. Despite insurance, large numbers of people in the middle class wound up declaring bankruptcy due to being under-insured with high out of pocket expenses:

Out-of-pocket medical costs averaged $17,943 for all medically bankrupt families: $26,971 for uninsured patients, $17,749 for those with private insurance at the outset, $14,633 for those with Medicaid, $12,021 for those with Medicare, and $6545 for those with Veterans Affairs/military military coverage. For patients who initially had private coverage but lost it, the family’s out-of-pocket expenses averaged $22,568.

Among common diagnoses, nonstroke neurologic illnesses such as multiple sclerosis were associated with the highest out-of-pocket expenditures (mean $34,167), followed by diabetes ($26,971), injuries ($25,096), stroke ($23,380), mental illnesses ($23,178), and heart disease ($21,955).

Hospital bills were the largest single out-of-pocket expense for 48.0% of patients, prescription drugs for 18.6%, doctors’ bills for 15.1%, and premiums for 4.1%. The remainder cited expenses such as medical equipment and nursing homes. While hospital costs loomed largest for all diagnostic groups, for about one third of patients with pulmonary, cardiac, or psychiatric illnesses, prescription drugs were the largest expense.

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  1. 1
    Mike says:

    I am quite clueless in the realm of medical expenses. Does each individual state decide how much medicaid will pay for stuff?  This is in reference to the story of Delaware cutting payments of (non-generic?) drugs from 86% of retail down to 84%.  This discount apparently promted Walgreens to stop accepting medicare in Delaware.  Do you know what that is all about?

  2. 2
    Ron Chusid says:


    You have Medicare and Medicaid both mixed together above–they are two separate programs. Medicare is a federal program for those over 65 and the disabled. Overall decisions are made by Congress with specific pay coming from intermediaries which generally cover a region of several states. The drug program is handled by private insurance plans. Medicaid is a mixed federal/state program for the indigent which is run at the state level. (Some people qualify for both Medicare and Medicaid). Medicaid, considering the difference in patient population, has far less funding than Medicare and pays much less. I don’t know specifically what is happening in Delaware but it is certainly plausible that a Medicaid plan could have cut what they pay for prescriptions to the point where a pharmacy would decide to accept them. In general I suspect pharmacies accept Medicaid even if their profit margin is small because of other sales once someone is in their store.

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