Even for the Insured, a Hospital Stay Has Surprising Costs
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Healthcare Economics Jul 3, 2018

Even for the Insured, a Hos­pi­tal Stay Has Sur­pris­ing Costs

The long-term finan­cial toll extends far beyond med­ical bills.

Hospitalization hurts your credit.

Michael Meier

Based on the research of

Carlos Dobkin

Amy Finkelstein

Raymond Kluender

Matthew J. Notowidigdo

Health insur­ance is not real­ly about insur­ing your health. It’s about insur­ing you from the neg­a­tive finan­cial con­se­quences of poten­tial health prob­lems, par­tic­u­lar­ly those that require hospitalization. 

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That is how Kel­logg asso­ciate pro­fes­sor of strat­e­gy Matthew Notowidig­do often describes health insur­ance. But, he won­dered, how well does it actu­al­ly work? Does it indeed shield pol­i­cy­hold­ers from finan­cial harm when an acci­dent or ill­ness strikes? And, if not, how far-reach­ing is that harm after a hos­pi­tal stay? 

In a study that ana­lyzed con­sumer cred­it-report data along­side hos­pi­tal records, Notowidig­do and his coau­thors found that even insured patients get hit hard by hos­pi­tal­iza­tion. And the con­se­quences stretch well beyond out-of-pock­et costs to include impacts on cred­it and long-term earnings. 

We could real­ly see how a person’s finan­cial pic­ture evolved after they spent time in the hos­pi­tal,” says Notowidig­do, who is also a pro­fes­sor in Northwestern’s depart­ment of economics. 

The research also refut­ed ear­li­er stud­ies by find­ing that hos­pi­tal­iza­tion rarely leads to bank­rupt­cy. Still, it high­light­ed the lim­its of health insur­ance in help­ing to cov­er the broad finan­cial con­se­quences of health shocks. 

Deter­min­ing the Costs of Hospitalization

The research ini­tial­ly set out to explore the finan­cial con­se­quences of hos­pi­tal admis­sion for insured peo­ple ver­sus those with­out insur­ance, says Notowidig­do, who teamed up with Car­los Dobkin at the Uni­ver­si­ty of Cal­i­for­nia, San­ta Cruz, and Amy Finkel­stein and Ray­mond Klu­en­der at MIT, for the study.

The team focused only on those ages 25 to 64 who were actu­al­ly admit­ted to the hos­pi­tal, as opposed to just vis­it­ing an ER or under­go­ing out­pa­tient treatment. 

They merged con­sumer cred­it-report data with Cal­i­for­nia hos­pi­tal records to exam­ine how hos­pi­tal­iza­tion affect­ed the sub­se­quent finan­cial health of hun­dreds of thou­sands of indi­vid­u­als. Specif­i­cal­ly, they were able to esti­mate the finan­cial effects of being admit­ted to the hos­pi­tal by ana­lyz­ing cred­it scores, cred­it lim­its, bor­row­ing his­to­ry, unpaid med­ical bills, bank­rupt­cy fil­ings, and oth­er data for mil­lions of people. 

The team’s orig­i­nal hypoth­e­sis was sim­ple: that the finan­cial con­se­quences of a hos­pi­tal admis­sion would be more severe for unin­sured peo­ple than for those with insur­ance. They set out to doc­u­ment the mag­ni­tude of the dif­fer­ence and under­stand how it played out across finan­cial dimensions. 

What they found went well beyond that. 

Beyond Out-of-Pock­et

The study found that, indeed, peo­ple with­out insur­ance did face more severe finan­cial impact than those with health­care cov­er­age. For exam­ple, those with­out insur­ance end­ed up, on aver­age, with $6,000 more in unpaid debt four years after being hos­pi­tal­ized than if there had been no admis­sion. That is 20 times high­er than those with insur­ance, who aver­aged a $300 increase in such debt four years post-hospitalization. 

That’s a star­tling dif­fer­ence,” Notowidig­do says. 

There are peo­ple who expe­ri­ence med­ical bank­rupt­cies, but these rep­re­sent only a very small share of the total num­ber of bank­rupt­cies in any giv­en year.”

But the more sur­pris­ing set of find­ings had to do with how wide­spread the finan­cial impact of hos­pi­tal­iza­tion was for both those with and with­out insurance. 

For one, the research shows that a hos­pi­tal stay has con­se­quences for a patient’s income. On aver­age, people’s pre-hos­pi­tal­iza­tion earn­ings declined about 20 per­cent with­in four years. 

That’s a lot larg­er than we would have pre­dict­ed,” Notowidig­do says. 

The researchers also found that hos­pi­tal­iza­tion among both the insured and unin­sured was asso­ci­at­ed with decreas­es in all types of bor­row­ing, includ­ing cred­it-card bal­ances, auto loans, and sec­ond mortgages. 

This may seem coun­ter­in­tu­itive, because peo­ple, espe­cial­ly those with­out insur­ance, may need to bor­row to cov­er med­ical costs. Yet this is con­sis­tent with the idea that people’s earn­ings go down post-hos­pi­tal­iza­tion, which makes them less eli­gi­ble for cred­it. Indeed, for peo­ple who were hos­pi­tal­ized, cred­it lim­its declined by $2,125, on aver­age, four years post-admission. 

Far-Reach­ing Health Shocks

There are a num­ber of rea­sons this may hap­pen, Notowidig­do says. 

For one, hos­pi­tal­iza­tions are typ­i­cal­ly for seri­ous con­di­tions. It may seem obvi­ous, but being admit­ted to the hos­pi­tal may mean you won’t recov­er quick­ly or return to work eas­i­ly,” he says. That has impli­ca­tions for people’s earnings.” 

Com­pound­ing the prob­lem is that peo­ple fac­ing con­se­quences of hos­pi­tal­iza­tion often have a min­i­mal safe­ty net, if any. 

Insur­ance cov­ers you for health­care-spe­cif­ic expens­es,” Notowidig­do says, but not against these broad­er earn­ings con­se­quences, and most peo­ple don’t have short-term dis­abil­i­ty insurance.” 

The prob­lem looms espe­cial­ly large in the U.S.

A sim­i­lar analy­sis in Den­mark showed that labor earn­ings also fall as a con­se­quence of hos­pi­tal­iza­tion there,” Notowidig­do says, but their sys­tem has lots of oth­er ways of replac­ing lost income.” Indeed, about 50 per­cent of lost income in that coun­try was cov­ered through some form of insurance. 

Short of Med­ical Bankruptcy

As dire as this may sound, the study did have some more opti­mistic find­ings: the rate of med­ical bank­rupt­cy has been large­ly exag­ger­at­ed in pub­lic debate. 

Being admit­ted to the hos­pi­tal is a seri­ous event,” Notowidig­do says, but we found that the rate of going bank­rupt from hos­pi­tal­iza­tion isn’t as high as many thought. There are peo­ple who expe­ri­ence med­ical bank­rupt­cies, but these rep­re­sent only a very small share of the total num­ber of bank­rupt­cies in any giv­en year.” 

While up to 1 per­cent of house­holds may expe­ri­ence bank­rupt­cy in a giv­en year, only a very small per­cent­age of those will be med­ical­ly dri­ven. The researchers cal­cu­late that only about 4 per­cent to 6 per­cent of per­son­al bank­rupt­cies could be attrib­uted to med­ical expens­es. Pre­vi­ous stud­ies have esti­mat­ed that as much as 60 per­cent of bank­rupt­cies are medical. 

Notowidig­do cites method­olog­i­cal issues with past research as part of the problem. 

Ask­ing peo­ple why they went bank­rupt may not be a very reli­able approach,” he says, because peo­ple may not want to admit they over­spent or under-saved; it’s eas­i­er to blame it on unex­pect­ed med­ical bills.

The dif­fer­ences between past research and this study are not relat­ed to the intro­duc­tion of the Afford­able Care Act, Notowidig­do explains, since the data he and his coau­thors used came from before the new health­care law was enacted. 

The research find­ing adds dimen­sion to the ongo­ing pol­i­cy debate about the best approach to healthcare. 

We felt like med­ical bank­rupt­cy was giv­en dis­pro­por­tion­ate atten­tion in pol­i­cy dis­cus­sions rel­a­tive to oth­er finan­cial con­se­quences like unpaid med­ical debt, which can linger over you and affect your abil­i­ty to get a mort­gage or car loan,” Notowidig­do says. 

For exam­ple, Sen­a­tors Eliz­a­beth War­ren and Shel­don White­house cit­ed med­ical bills as lead­ing caus­es of bank­rupt­cy when intro­duc­ing the Med­ical Bank­rupt­cy Fair­ness Act in 2014. In response to this new research, War­ren and two researchers wrote a rebut­tal that defends the idea that med­ical bank­rupt­cies are more com­mon than Notowidig­do and his coau­thors find. 

In terms of his study’s find­ings, Notowidig­do sum­ma­rizes: Hos­pi­tal admis­sions have both finan­cial and labor mar­ket con­se­quences that go well beyond out-of-pock­et costs but may stop short of bank­rupt­cy. Health insur­ance, while ben­e­fi­cial, doesn’t cov­er all of these well enough. Indi­vid­u­als and pol­i­cy­mak­ers need to under­stand that.” 

Featured Faculty

Matthew J. Notowidigdo

Associate Professor of Economics, Weinberg College of Arts and Sciences; Associate Professor of Strategy

About the Writer

Sachin Waikar is a freelance writer based in Evanston, Illinois.

About the Research

Dobkin, Carlos, Amy Finkelstein, Raymond Kluender, and Matthew J. Notowidigdo. 2018. “The Economic Consequences of Hospital Admissions.” American Economic Review. 108(2): 308–352.

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