Ryan’s Medicare Overhaul: Would it increase the rate of medical bankruptcy?
Blog Commentary
With no Democratic support, the US House of Representatives passed Rep. Paul Ryan’s much-ballyhoo’d 2012 budget proposal on Friday, April 15, 2011.
Rather than go into great detail regarding Ryan’s Path to Prosperity, I’m going to focus on one piece that could be financially devastating for many Americans– his plan to remake Medicare into a voucher system for anyone currently under 55 years of age. This is a financially dangerous idea.
A group of Harvard researchers has released multiple studies showing that medical costs contribute to more bankruptcies in the US than any other factor. Reporting in The American Journal of Medicine in 2009…
Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%. In logistic regression analysis controlling for demographic factors, the odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001.[Emphasis added.]
In other words, patients were almost 2.5 times more likely to go bankrupt because of medical bills in 2007 than in 2001 (when this group conducted its first landmark medical bankruptcy study). And 75% of these bankruptcies were among people who had health insurance.
Fast forward to 2011, the same Harvard research group revealed new data regarding medical bankruptcies in the State of Massachusetts. (You’ll remember that Massachusetts passed healthcare reform several years ago under then Governor Mitt Romney. The Massachusetts plan requires people to buy health insurance; this plan was the blueprint for the much-maligned Affordable Care Act [AKA Obamacare].) What they found was that even though healthcare reform provided widespread coverage in Massachusetts, it didn’t significantly reduce the number of people going bankrupt due to medical bills. From …
Despite broad insurance coverage in Massachusetts after reform, bankruptcy filings due to medical costs did not decrease significantly between 2007 and 2009. There is a web of causality behind this finding. Although only 11% of Massachusetts debtors remained uninsured, there was widespread underinsurance, leaving people with high out-of-pocket costs in deductibles, co-pays, and uncovered services. In addition, many debtors lost their jobs due to illness or experienced reduced income due to illness. In cascading events, loss of income led to loss of housing in many cases. [Emphasis added.]
So, what’s this got to do with Ryan’s voucher system? A lot! For everyone who is currently under 55, Ryan proposes to change Medicare to a voucher system. Everyone would receive an annual allowance– $15,000/year is what Rachel Maddow reported but real numbers are hard to obtain. This allowance would be a set amount and would not increase at the rate of inflation. During the year, any medical costs over that annual allowance amount would be paid out of pocket by the individual.
The Congressional Budget Office estimates that Ryan’s plan may help save the government money, but seniors could end up paying an additional $12,510 each per year. This figure assumes no major changes in health status; anyone who has the misfortune to contract a serious illness, has a major accident, or needs an expensive surgery would, of course, pay much more than that.
The bottomline is people are going bankrupt at an increasing rate due to medical bills, and even with healthcare reform in Massachusetts, people are still going bankrupt because many people are buying inadequate insurance (AKA what they can afford). Given these realities, if the government forces people to pay all medical costs after a certain dollar figure has been reached, there could be an astronomical increase in bankruptcies in the US– especially if the feds choose a ridiculously low allowance figure.
— Pamela J. Powers, MPH, AJM Managing Editor
