Monday, February 02, 2009

Did a health insurance meltdown prick the housing bubble?

Via Ezra Klein, results from a study by Harvard Fellow Christopher T. Robertson of the causes of foreclosure:
Based on our study of homeowners going through foreclosures in four states... we find that half of all foreclosures have medical causes, and we estimate that medical crises put 1.5 million Americans in jeopardy of losing their homes last year.

Half of all respondents (49%) indicated that their foreclosure was caused in part by a medical problem, including illness or injuries (32%), unmanageable medical bills (23%), lost work due to a medical problem (27%), or caring for sick family members (14%). We also examined objective indicia of medical disruptions in the previous two years, including those respondents paying more than $2,000 of medical bills out of pocket (37%), those losing two or more weeks of work because of injury or illness (30%), those currently disabled and unable to work (8%), and those who used their home equity to pay medical bills (13%). Altogether, seven in ten respondents (69%) reported at least one of these factors.

The study suggests that almost a quarter of those who lost their homes did so at least in part because of medical debt. That actually looks like less than the percentage reported by Jacob Hacker in The Great Risk Shift (2006) -- perhaps because Hacker grouped together bankruptcies and foreclosures. Medical debt probably triggers a higher share of bankruptcies than foreclosures, since in most states, the home is protected in a bankruptcy. Here are Hacker's figures on the impact of medical debt on Americans' financial distress:

...if you add the ranks of the uninsured to those without adequate coverage, you have more than 40 percent of the working-age population in an immediate economic bind because of medical costs. About half these people--slightly more of the uninsured than the underinsured, but not much more--report severe problems paying their medical bills. These are the families accounting for the 40 percent to 50 percent of people in bankruptcy or foreclosure who say health care is the number one reason for their plight.

In any event, whatever the impact of exotic adjustable-rate mortgages and soaring home prices (to 2006) on foreclosures, it seems clear that soaring medical costs and ever more porous health insurance are having a major effect on Americans' ability to stay solvent and keep their homes.

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