In early June 2009, long before Scott Brown would emerge as the 41st vote, and even longer before Brown would be challenged in the 2012 Senate race by Elizabeth Warren, Warren was the darling of the push for Obamacare.

Warren released  a study showing that over 60% of personal bankruptcy filings were linked to medical expenses.  The one-page “fact sheet” distributed with the study highlighted the following:

Illness and medical bills were linked to at least 62.1% of all personal bankruptcies in 2007. Based on the current bankruptcy filing rate, medical bankruptcies will total 866,000 and involve 2.346 million Americans this year – about one person every 15 seconds.

Such “fact sheets” distributed with longer, more dense reports amount to press releases, basically “talking points for dummy journalists.”

It did not take much for “linked” to become “caused.”  It became a health care reform talking point that medical bills caused over 60% of all bankruptcies and that such bankruptcies were rising.  Kathleen Sebelius used the study in television interviews.

From The NY Times, June 4, 2009:

Nearly two out of three bankruptcies stem from medical bills, and even people with health insurance face financial disaster if they experience a serious illness, a new study shows.

But the actual findings were not as strong as the fact sheet, the media and Democrats portrayed.  In fact, medical billed were deemed “linked” to the bankruptcy even if only 10% of pretax family income:

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.

Meghan McArdle pointed out the weakness of making the causal connection on such a wide scale of medical bills and bankruptcy, since bankruptcy filers themselves did not identify medical expenses as the cause of the bankruptcies (emphasis mine):

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?

McArdle elaborated on other misleading aspects of the study, and then followed up with Why Elizabeth Warren’s New Bankruptcy Study is So Bad:

She’s a professor at Harvard, and the head of the Congressional TARP oversight panel.  This conveys a certain responsibility to present data in the most illuminating way, not in the way that will induce journalists to say things that aren’t true.

The post 2005 increase in bankruptcies isn’t being driven by medical bankruptcies.  It’s simply rebounding from what every single analyst at the time, including Elizabeth Warren, agreed was an unsustainable drop.

There is no doubt that many people are forced into financial difficulty and even bankruptcy (which of course wipes out the medical debt) by catastrophic illness.

A simple answer would be to create incentives for insurance companies to offer catastrophic health insurance policies at low rates.  High deductible policies would be one such device, which relatively cheaply would prevent catastrophic medical bills.

Much like umbrella liability policies, catastrophic health policies would be affordable because they only would kick in in a relatively small number of cases, yet would protect against medical bills causing financial ruin.

These catastrophic policies will not qualify as coverage under Obamacare, which emphasizes all encompassing policies with low or no deductibles (e.g., contraception).  Because the mandatory policies are loaded with the types of coverages which are not related to catastrophic costs, all policies rise in cost and fewer people can afford any coverage.

Elizabeth Warren’s June 2009 medical bankruptcy study did not “cause” Obamacare and the elimination of relatively low cost private catastrophic health  insurance, but Warren is “linked” to such ruin.


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