(Bloomberg View) — One of the predictions that was made, with great fanfare, when Obamacare passed, was that our nation’s bankruptcy epidemic would finally come to an end. Last week, veteran liberal commentator Norm Ornstein declared that it had already come to pass.
“Before Obamacare,” he tweeted, “more bankruptcies from health bills than anything else. Now, hardly at all. Do we really want to go back to that?”
Did medical bills single-handedly account for more bankruptcies than anything else? No. This is an exaggerated half-remembering of a series of studies, authored by (among others) Elizabeth Warren, that were themselves exorbitant exaggerations.
I went into detail on the problems with the work seven years ago, but the highlight reel is that these authors have an aggressive tendency to employ any technique that ratchets the count of “medical bankruptcy” upward, while not using similar techniques that would tend to ratchet up other categories and diminish the number of bankruptcies counted as medical, and to present their results in misleading ways — so as to obscure, for example, the fact that by their own accounting, the number of medical bankruptcies actually fell by hundreds of thousands between 2001 and 2007. Which is why their study tended to be presented in the media as “growing problem” rather than “shrinking threat.”
Related: Medical bills bust finances
To be clear: I don’t believe that medical bankruptcies fell by hundreds of thousands between 2001 and 2007. I think this conclusion further suggests just how problematic their methodology is. So does the fact that in 2011, two of Warren’s co-authors issued a new study finding that medical bankruptcy hadn’t fallen in Massachusetts after the passage of Romneycare. These two co-authors are the co-founders of Physicians for a National Health Care Program, an advocacy group that supports single-payer in America, and they have a noticeable tendency to find that — quelle surprise — America has enormous problems with medical bills that can be solved only by a single-payer health care system. They have a lot of latitude to get that answer, because it’s surprisingly hard to know exactly which bankruptcies are medical. Someone who bought three new cars, and also had a hernia, is probably going to blame the hernia.
Medical bills v. loss of income
And we also have to look beyond the bills. The Warren studies tended to get reported, or remembered, as “medical bills cause more than half of all bankruptcies.” That’s not quite what they said. Bad health events do more than land you with big medical bills (which bills can often be settled for pennies on the dollar, because the collectors know they get nothing if you file). Getting really sick also cuts your income as you stop working. If you’ve got debt and no savings, that job loss is going to be catastrophic.
Unfortunately, the incentives of both academic journals and the media mean that dubious research often gets more widely known than more carefully done studies, precisely because the shoddy statistics and wild outliers suggest something new and interesting about the world. If I tell you that more than half of all bankruptcies are caused by medical problems, you will be alarmed and wish to know more. If I show you more carefully done research suggesting that it is a real but comparatively modest problem, you will just be wondering what time “Game of Thrones” is on.
So no, it was never reasonable to think that medical bills, all by themselves, could explain more than a modest fraction of bankruptcies. Nor is it reasonable to think that Obamacare single-handedly reduced those bankruptcies to nothing.