The debate over the extent to which uninsured medical costs lead to personal bankruptcies is interesting for a couple of reasons. In terms of social science, it shows the difference between a naive reading of survey data and an actual research design. In terms of politics, it shows the allure of a more glamorous and striking claim, even when incorrect, over a similar claim that is less flashy but actually true.
There's a recent outbreak of this debate in the pages of the New England Journal of Medicine. In the issue of March 22, 2018, Carlos Dobkin, Amy Finkelstein, Raymond Kluender and Matthew J. Notowidigdo have written a short "Perspective" piece called "Myth and Measurement — The Case of Medical Bankruptcies" (pp. 1076-1078). It's a purely verbal article, not a research report, which draws heavily the findings of their article called "The Economic Consequences of Hospital Admissions." which appeared in the February 2018 issue of the American Economic Review (108: 2, pp. 308-52). If you don't have access to the AER online, a final version of the paper in manuscript is here.
"During the push to pass the Affordable Care Act, President Barack Obama often described the “crushing cost of health care” that was causing millions of Americans to “live every day just one accident or illness away from bankruptcy” and repeatedly stated that the high cost of health care “causes a bankruptcy in America every 30 seconds.” Stories of illnesses and injuries with financial consequences so severe that they caused households to file for bankruptcy were used as a major argument in support of the 2010 Affordable Care Act. And in 2014, Senators Elizabeth Warren (D-MA) and Sheldon Whitehouse (D-RI) cited medical bills as “the leading cause of personal bankruptcy” when introducing the Medical Bankruptcy Fairness Act, which would have made the bankruptcy process more forgiving for “medically distressed debtors.” But it turns out that the existing evidence for “medical bankruptcies” suffers from a basic statistical fallacy; when we eliminated this problem, we found compelling evidence of the existence of medical bankruptcies but discovered that medical expenses cause many fewer bankruptcies than has been claimed."
"Our findings suggest that non-elderly insured adults still face considerable exposure to adverse economic consequences of hospital admissions through their impact on labor earnings. ... Taken together, our findings underscore the nature of insurance, and the lack thereof, in the United States. Our estimates suggest that in the first few years, the total medical expense and earnings consequences of a hospital admission are similar for insured adults and that over a longer horizon the earnings consequences loom relatively larger. By design, insurance in the US covers (a large portion of) medical expenses but relatively little of the earnings decline. Employer provision of sick pay and private disability insurance is fairly sparse, and public disability insurance is available only after a lengthy application and approval process (Autor et al. 2015). By contrast, in many other countries, there is substantially more formal insurance for the labor market consequences of adverse health."
Thus, the Dobkin et al. group are agreeing that a period of poor health and high health care costs can be a serious economic burden--but pointing out that the burden often results more from a loss of labor income than from the actual health care costs. As a result, improved insurance for health care costs would be only a very partial fix. And improved health care insurance would have only a very small effect on the total number of bankruptcies.
Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.