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D. Brad Wright

D. Brad Wright

Posted: April 7, 2010 07:32 AM

Going Bankrupt Over Illness

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A central aspect of health care reform is expanding access to care by requiring individuals to obtain health insurance coverage. Of course, this presupposes that having health insurance matters. There is a large body of literature in this area showing that it does matter for health outcomes, but the most recent study doesn't look at that. It focuses instead on financial outcomes. The study by Keziah Cook, David Dranove, and Andrew Sfekas appears in the latest issue of Health Services Research. It asks the question: When serious illness strikes, how does it impact a family's finances, and does that effect depend on whether or not the family has insurance?

As usual, I will spare you most of the methodological details, but I will say that the investigators went to great lengths to match households on the basis of health status, baseline wealth, and other demographic and health characteristics. This is important, because it is a good way of creating controls in a non-experimental context. It is also important to note, however, that the insured households used in this study resembled uninsured households in other ways--perhaps more so than they resembled other insured households. Therefore, the findings are more generalizable if we ask what would happen to the uninsured if they gained insurance coverage, rather than the other way around.

All of that being said, here is the startling conclusion: Consider a healthy and insured family, a healthy but uninsured family, a newly ill but insured family and a newly ill AND uninsured family. If each of 4 groups had baseline assets of $20,000, the healthy and insured family would still have $20,000 two years later. The healthy but uninsured family and the newly ill but insured family would also have $20,000 two years later. The newly ill but uninsured family would have only $15,600 in assets. And for more major illnesses, that figure drops to $9,740.

This all makes sense. The healthy families don't lose assets -- whether or not they have insurance. The newly ill families don't lose assets either, provided that they have insurance coverage to protect them. But the remaining group -- those families who illness strikes and who have no insurance coverage to protect them--take a major hit, losing anywhere from 22% to 51% of their total household assets in just two years. That's a big blow even if the fallout stops there, but it most likely doesn't. People may lose their jobs and they very well may remain ill for many more years to come.

So, if anyone says that people don't really need insurance -- or claims that they can just go to the emergency room for care -- they need to think again. Falling ill, which can happen to any of us at any time, has the potential to destroy our lives. The wealth we have worked so hard to amass over the years can be wiped out in no time at all without the safety net insurance coverage provides. This is why it is so important to regulate and strengthen the insurance industry. This is why everyone needs to have insurance coverage. Because when disaster strikes, we can't afford not to.

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