Health Expenditures and Personal Bankruptcies

Abstract

Using household-level data from the Panel Study of Income Dynamics, we estimate the extent to which medical expenses are responsible for driving households to bankruptcy. Our results suggest that an increase of 10 percent in medical debts would cause a 27 percent increase in the filing propensity of households with primarily medical debt, and an approximately 36 percent increase in filing propensity of households where medical debts co-exist with primarily credit card debts. Studying the post-bankruptcy scenario, we find that filers are 19 percent less likely to own a home even several years after the filing, compared to non-filers. However, the consequences are less adverse for medical filers i.e. those who filed due to high medical bills compared to other filers.