Obama’s Bankruptcy Math Has to be Wrong

by Cord Blomquist on February 25, 2009 · 7 comments

in Healthcare, Politics as Usual, Regulation, Zeitgeist

President Obama claimed in his speech tonight:

“For that same reason, we must also address the crushing cost of health care.

“This is a cost that now causes a bankruptcy in America every thirty seconds.”

This number can’t be true.  A bankruptcy every 30 seconds would be equal to 120 bankruptcies per hour.  Multiply that by 24 hours in a day and 365 days in a year (presuming a non-leap year), and you get 1,051,200 bankruptcies per year.

This numbers seems a little high, even considering that 2008 was a year with a lot of a bankruptcies.  But there’s a reason that number seems high.  Namely, it’s not true.

According to Zacks Investment Research:

“During 2008, personal bankruptcies had the most significant increase since the major rewriting of the laws governing it were put in place in 2005.

“According to data from U.S. bankruptcy courts and compiled by bankruptcy data firm Automated Access to Court Electronic Records,  total filings of Chapter 7 and Chapter 13 bankruptcies rose 33% year-over-year to 1.1 million compared to 0.8 million.”

So, unless only 100 thousand bankruptcies were caused by non healthcare-related expenses—doubtful in the worse housing market in recent memory—these numbers are simply wrong.  (Too bad CNN couldn’t pick up a calculator and do a little fact checking on this one.)

Health care is still a serious issue and needs to be reformed.  But that’s not the point.

The point: don’t believe everything you hear, especially from politicians.

 

Update: Where Obama got his Numbers

Obama’s claim that the cost of health care “causes a bankruptcy in America every thirty seconds” is based on a study from the journal Health Affairs.  Here’s a synopsis of the study according to suite101.com (bolding is mine):

The study, conducted by researchers at Harvard’s medical and law schools, is based on interviews with 1,771 individuals who filed for bankruptcy in 2001. Of these filers, 931 cited medical causes for their financial woes.

The results of the study indicate that an estimated 1.9-2.2 million Americans (the filers and their families) are affected annually by medical bankruptcy. In other words, every 30 seconds someone new is forced to contend with the double whammy of medical and financial catastrophe.

Mr. Obama was very much technically incorrect.  A bankruptcy isn’t caused every 30 seconds by medical bills, but every 30 seconds an individual person is forced to contend with one.

So, the President was wrong, but it’s more sloppy math or repeating of the facts than out-and-out lying.  All the same, we should expect that our President gets the facts right, especially if those “facts” are going to be used as a basis for sweeping national policy changes.

Speaking of the facts, it turns out that this study was challenged by a study that appeared about a year later in the same journal, Health Affairs.  ”Medical Bankruptcy: Myth Versus Fact” by David Dranove and Michael L. Millenson challenges the findings of the “every 30 seconds” study.  Here’s an excerpt from the paper’s abstract:

David Himmelstein and colleagues recently contended that medical problems contribute to 54.5 percent of personal bankruptcies and threaten the solvency of solidly middle-class Americans. They propose comprehensive national health insurance as a solution. A reexamination of their data suggests that medical bills are a contributing factor in just 17 percent of personal bankruptcies and that those affected tend to have incomes closer to poverty level than to middle class. 

So, it’s more like every 90 seconds or so it seems, if such a calculation is a fair way to represent the facts at all. 

Making matters worse is another finding from the Dranove and Millenson, namely that health insurance reform alone wouldn’t solve the bankruptcy issue.  Again from the abstract:

Moreover, for national health insurance to have an impact, it would have to define “medical” expenses in a much broader way than is now typical of either private or government-funded plans.

This seems to be saying that medical bills alone don’t account for “medical related” bankruptcies.  Most likely this is due to loss of income from loss of a job due to a debilitating injury. That’s a problem that cant’ be addressed through health insurance, so using the figure as justification for overhauling health insurance isn’t a fair use of the facts.

Bottom Line: Statistics are always manipulated by those in power to justify their own agenda.  Mr. Obama isn’t going to go into the subtleties of the math with us, he’s not going to say that experts disagree on an issue—he’s going to say that a bankruptcy happens every 30 seconds due to medical bills, or some other claim that scares you into giving him more power.

So, check the facts.  Challenge authority.  Be a responsible citizen.  That’s the change we really need.

Greg Williamson February 25, 2009 at 4:40 am

Question: How can you tell when a politician is lying?

Answer: His/her lips are moving!

Julie February 25, 2009 at 5:48 am

If it's gloomy and will scare the American public, the BO Administration will try to pass it off as the truth. They know the media won't lift a finger to stop them.

No Oil for Pacifists February 28, 2009 at 7:36 pm

Obama's numbers clearly are wrong:

http://nooilforpacifists.blogspot.com/2009/03/oba

lou March 2, 2009 at 5:13 pm

…thank god its only one every 90 seconds. I was afraid it was a serious problem. Lets have another Mocha Latte.

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