The following article is an except form pages 62-64 of my book The Conscience of a Young Conservative. If you enjoy, free PDF copies are available through Liberty.me, and print copies are available on Amazon. 

A 2007 study conducted by Dr. David Himmelstein and researchers from both Harvard University and Ohio University claimed to find that 62 percent of all bankruptcies in the year 2007 were caused by medical costs.[1] If accurate, this would amount to 2.4 million bankruptcies per year solely due to medical costs. Elizabeth Warren is fond of quoting the conclusions reached in this study – because she is one of the researchers involved in conducting it.

Leaving the bias of Himmelstein aside, (he is the National Spokesperson for Physicians for a National Health Program, which advocates a single payer system) there are multiple red flags that provide reasons to be skeptical. For instance, the study claims that 78 percent of those bankrupt from medical expenses had health insurance.[2] While the problem of the underinsured does exist, Himmelstein’s “discovery” that more insured people go bankrupt than those uninsured is questionable.

Some other claims made by the Himmselstein study are that medical related bankruptcies increased 50 percent between 2001 and 2007, and that the majority of those bankrupt are middle class and well educated.

Some basic problems with the study stem from its small sample size and how bankruptcy is defined for the purposes of the study. Despite attempting to get a sample size of 2,314 individuals, only 1,032 were actually interviewed for the study. Himmselstein also links all medical debt with bankruptcy. Even if an individual were to be a dollar in medical debt, and went bankrupt for any reason, he is factored into the 62 percent statistic. While Himmselstein does specify that in 92 percent of medical bankruptcies the individual has debts of over $5,000, his methodology is still sloppy. The respondents themselves may give better testimony to the causes of their bankruptcy, as only 32 percent of them attributed it to medical expenses.[3]

Then we have competing studies. The most reliable study to date uses a sample size nearly 5 times that of Himmselstein’s. This study, conducted by the Department of Justice, found that 54 percent of bankruptcies involve no medical debt, and 90 percent have debt under $5,000. In addition, a study based on the Survey of Consumer Finances published by the Federal Reserve demonstrated that medical debt only rose from 5.5 percent of all debt to 5.8 percent of all debt between 2001 and 2007.[4]

The study also took place during a year (2007) atypical of other years when it comes to bankruptcy procedures. As Megan McArdle of The Atlantic has documented, in 2005 a congressional bankruptcy reform bill was passed which made it more difficult to file for Chapter 7 bankruptcy (where you liquidate your debts and are not required to go into a payment plan). As McArdle writes:

This tightening was real, but rather exaggerated in the popular press (the overwhelming majority of people who need to file bankruptcy will have no problem qualifying for a Chapter 7).  Perhaps for that reason, even bankruptcy experts were stunned by the number of people who rushed to file before the six month grace period in the law was up.  They were also stunned by the magnitude of the decline, and how long bankruptcies took to start trending back towards previous levels.[5]

There was an enormous upwards spike in the number of people filing for bankruptcy before the law went into effect. Around 12,000 people filed daily shortly before the law went into effect, but this number then fell sharply to about 1,000 daily after the law took effect. After that, daily bankruptcy filings began to steadily rise from the 1,000 of October 2005 to around 7,000 in 2010.[6] Because of this, the study measures a period where bankruptcies rose due to changes in legal code, not increasing medical expenses.

A handful of other studies have contradicted the findings of Himmelstein. This includes studies by Aparna Mathur of the American Enterprise Institute, David Dranove and Michael Millsenson of Northwestern University, Scott Fay, Erik Hurst, and Michelle White from the Universitys of Florida, Chicago, and San Diego, and lastly by David Gross of Compass Lexecon and Nicolas Souleles of the University of Pennsylvania.[7]

[1] Himmelstein, David U., Deborah Thorne, Elizabeth Warren, and Steffie Woolhandler. “Medical Bankruptcy in the United States, 2007: Results of a National Study.” The American Journal of Medicine, 2007. <http://www.pnhp.org/new_bankruptcy_study/Bankruptcy-2009.pdf>.

[2] Credit to Lee Doren for pointing this out. See the video on his YouTube Channel “HowTheWorldWorks” titled “The Young Turks are Clueless, Part 5 of 4076.” Posted on November 19th 2009.

[3] McArdle, Megan. “Considering Elizabeth Warren, the Scholar.” The Atlantic, 22 July 2010.  <http://www.theatlantic.com/business/archive/2010/07/considering-elizabeth-warren-the-scholar/60211/>.

[4] “Survey of Consumer Finances.” The Federal Reserve Board, 2007.

<http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html>. Note: This source was obtained through Lee Doren’s video.

[5] Ibid.

[6] Ibid.

[7] Furchtgoth-Roth, Diana. “Testimony before the Senate Committee on the Judiciary, Subcommittee on Administrative Oversight and the Courts.” Hudson Institute, 20 Oct. 2009. <http://www.judiciary.senate.gov/pdf/10-20-09%20Furchtgott-Roth%20Testimony.pdf>.