No indication of causation. Second, the fact that a health issue was associated with a bankruptcy does not indicate causation. The authors declared that any bankruptcy with one of these health issues present constitutes a “medical bankruptcy.” This is a highly misleading characterization.

Instead, the authors could have asked households if they had tax liens over $1,000 within the last two years, or credit card debts over that amount. Would they then have defined those bankruptcies as “tax bankruptcies” or “credit card bankruptcies?” Would households reporting a divorce or separation within the last two years have been declared “marital bankruptcies?”

The authors never demonstrated that a health issue was the primary cause of bankruptcy rather than simply one factor associated with it. They failed to examine other critical factors that could lead to bankruptcy — such as lack of savings, divorce, over-spending, other family needs, or unemployment unrelated to health — and they did not ask respondents to rank the relative contribution of various factors to their bankruptcy.

The authors noted that even people with health insurance had so-called “medical bankruptcies.” Then they made another unjustified logical leap: that inadequate health insurance must be the cause of these bankruptcies. Yet the authors also noted that debtors’ “out-of-pocket medical costs were often below levels that are commonly labeled catastrophic.”

I was going to cite job loss as a major cause of bankruptcy in the previous post, which is the conventional wisdom. But this paper argues it isn’t true:

This paper utilizes the population of personal bankruptcy filings in the state of Delaware during 2003 and finds that household expenditures on durable consumptions, such as houses and automobiles, contribute significantly to personal bankruptcy. Adverse medical conditions also lead to personal bankruptcy filings, but other adverse events such as divorce and unemployment have marginal effects. Over-consumption makes households financially over-stretched and more susceptible to adverse events, which reconcile the strategic filing and adverse event explanations.