AARP Peddles Medical Bankruptcy Myth to New Extreme

Last night, as I watched the Republican National Convention on MSNBC, I about fell out of my chair when I saw an ad by AARP that claimed that “1.85 million Americans go bankrupt due to medical bills in one year.” The extreme exaggeration — nothing even approaching 1.85 million Americans go bankrupt due to medical bills — came as quite a shock. (Yes, I know, any AARP ad, no matter how exaggerated, really isn’t “fall out of chair” material. Disturbing as it may be, that was in fact my reaction.)

Of course, AARP intends to use their extreme exaggeration to stir up public sympathies to radically revamp a health care system that apparently plunges people into financial ruin.

In the past year I’ve written a couple blog posts that discuss the flawed methodology behind studies and reports that seem to overestimate the number of medical bankruptcies and the number of “underinsured” Americans.

Even compared to these studies, 1.85 million is a stratospherically high estimate. The study most often cited as proof of a widespread medical bankruptcy problem estimates that about half of the 1,452,030 bankruptcies filed in 2001 were caused by medical debt. For anyone needing help dividing by two, that’s 726,015 medical bankruptcies. According to the American Bankruptcy Institute, bankruptcies peaked at 2,039,214 in 2005. And so, if we buy into the half of all bankruptcies estimate, medical bankruptcies peaked at 1,019,607. That’s nothing close to 1.85 million.

Now consider that bankruptcy reforms implemented in 2006 cut the number of bankruptcy filings by over half. Despite a jump in bankruptcy filings between 2006 and 2007, there were still only 822,590 filings in 2007. How on earth can there be over one million more medical bankruptcies than actual bankruptcies?

There’s obviously something very wrong with AARP’s claims.

How much does medical debt really impact bankruptcies?

A more recent study by Professor Ning Zhu does confirm that medical debt has an impact, but that it’s a relatively small one. (You can download the actual study here.) According to Prof. Zhu, most bankruptcies are caused by”over consumption”– e.g., buying a house or a car you really can’t afford — not a sudden economic upheaval like losing a job or being diagnosed with an expensive illness. Prof. Zhu found that only 5 percent of bankruptcies are caused by medical expenses. In the peak year of 2005, that would amount to 101,961 medical bankruptcies. That’s right. Not 1.85 million. Not even 1 million. Just 101,961.

— Peter J. Nelson is a Policy Fellow with Center of the American Experiment in Minneapolis. 

This commentary originally appeared on on September 5, 2008.
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