Elizabeth Warren and the Terrible, Horrible, No Good, Very Bad, Utterly Misleading Bankruptcy Study

Elizabeth Warren has another study out showing that medical expenses contribute to more than half of all bankruptcies--indeed, this time, it's 70%, up from the 50% she found in 2001. 

Now, it is possible that this is true.  The fact that it seems to disagree with every other study I've ever read that is not authored by Elizabeth Warren, and also, the self-reports of the people in her study (only about a third of whom attribute their bankruptcy to a health problem) could just be a fluke.  It doesn't necessarily mean that it's wrong.  

Yet upon closer examination, it turns out that it is not just wrong, but actively, aggressively wrong.  Warren and her co-authors have obscured important and obvious facts that call the integrity of the work into serious question.


The text itself raises a huge red flags.  It's hard to believe that more than half of people who have been pushed into bankruptcy by a medical issue don't understand this fact.  Perhaps they are not the brightest bulbs on the Christmas tree, but could it really be true that most people catapaulted into a financial crisis by their medical bills don't even notice that health care expenses are their main problem?

My radar is further engaged by the fact that they're implying a really astonishing surge in medical-bill-driven bankruptcies, in a healthcare environment that just didn't change all that massively.  Their study opens:

As recently as 1981, only 8% of families filing for bankruptcy did so in the aftermath of a serious medical problem.  By contrast, our 2001 study in 5 states found that illness or medical bills contributed to about half of bankruptcies.

Since then, the number of un- and underinsured Americans have grown, health costs have increased, and Congress tightened the bankruptcy laws.

In those six years, the percentage of uninsured families ground upward, and health care cost continued to rise at about twice the rate of inflation.  But a 2.5% real annual increase in the cost of a budget item  that accounts for something like 5% of annual household expenditures shouldn't make the bankruptcy stats jump that much. 

Perhaps there was a big increase in the volatility of those expenditures, with the average growing slowly, but a larger number of people being hit by truly massive bills?  Perhaps, but I'm aware of no data that show it.  Yes, people complain about deductible increases and more cost-shifting, but a $500 or $1000 increase in the annual deductible won't tip any family into bankruptcy, and the complaints about denied claims go back long before 2001.   For this to be causing such a huge surge in bankruptcies, health care companies would have had to discover some extraordinarily clever new way to deny people health care benefits without being sued, or fired by the companies who buy their insurance.  If they have, it hasn't been a prominent feature in the recent health-care debate.  As far as I know, they're still using the same old strategy of outlasting and/or confusing their patients.

Yet Warren, et al. claim their current results both show a dramatic increase, and are in robust agreement with their earlier study.  How could steadily, moderately rising medical bills, a roughly static business and legislative environment, and a small increase in the uninsured, possibly have driven up bankruptcies so massively?

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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