The Effects of Health On Wealth
Skip to content
The Insightful Leader Live: What to Know about Today’s AI—and Tomorrow’s | Register Now
Policy Strategy Economics Nov 1, 2009

The Effects of Health On Wealth

Major illness leads to financial catastrophe for the uninsured

Based on the research of

Keziah Cook

David Dranove

Andrew Sfekas

Listening: Interview with David Dranove
download
0:00 Skip back button Play Skip forward button 20:36

Anecdotal evidence about the bankrupting effects of illness on uninsured Americans abounds, but new research by David Dranove (Professor of Management and Strategy at the Kellogg School of Management) and Andrew Sfekas (Research Assistant Professor in the Center for Health Industry Market Economics at the Kellogg School of Management), and Keziah Cook (PhD candidate in economics at Northwestern University) adds scientific weight to the claim. Americans without health insurance may be one major illness away from financial catastrophe. Uninsured individuals, in particular those nearing retirement age who experience a major health concern, such as heart disease, cancer or a stroke, can lose up to half of their household assets in order to pay their medical expenses.

Dranove and his co-authors discovered a significant finding among the uninsured, ages 51 to 64, who experienced a major illness. The assets of uninsured households declined between 30 and 50 percent—in total, a median loss of 46 percent. In contrast, when matched with uninsured households with similar backgrounds, those with private health insurance did not experience a financial loss. The study—“Does Major Illness Cause Financial Catastrophe?”—appeared in Health Services Research.

“Lack of insurance is at the heart of the healthcare debate with 4.2 million uninsured Americans over 55. Our research provides compelling evidence of the financial damage for these families,” says Dranove. “Despite a person’s income, the uninsured face the risk of losing their retirement savings.”

Prior research has explored the impact of medical bankruptcy on the loss of household assets, but this new research is the first study to isolate health insurance and its direct impact on personal finances among individuals. The researchers focused on households with baseline assets between $1,000 and $200,000 and who reported one of six major illnesses, including diabetes, cancer, lung disease, heart problems, stroke, and emotional or psychiatric problems.

According to Dranove, the uninsured, near-elderly age group is particularly at risk because they have accumulated significant assets intended for retirement and have fewer opportunities to rebuild if they lose assets due to illness. “For this age bracket, a drop in assets could result in delayed retirement or a lower standard of living,” he says.

The researchers matched panel data from the most recent wave of results in the Health and Retirement Study (HRS), a longitudinal survey of near-elderly and elderly administered every two years since 1992 by the Institute for Social Research at the University of Michigan. They analyzed health, insurance, and financial data for both insured and uninsured households with at least one person under 65.

“These findings demonstrate private health insurance does protect people from financial ruin,” Dranove says. “The problem is not solely with our current system of private health insurance; the problem is ensuring people have access to insurance coverage.”

Featured Faculty

Walter J. McNerney Professor of Health Industry Management; Faculty Director of PhD Program; Professor of Strategy

About the Writer
Aaron Mays is assistant director of media relations at the Kellogg School of Management.
About the Research

Cook, Keziah, David Dranove, and Andrew Sfekas. 2010. “Does Major Illness Cause Financial Catastrophe?” Health Services Research, April, 45(2): 418-36.

Read the original

Most Popular This Week
  1. What Went Wrong at Silicon Valley Bank?
    And how can it be avoided next time? A new analysis sheds light on vulnerabilities within the U.S. banking industry.
    People visit a bank
  2. How Are Black–White Biracial People Perceived in Terms of Race?
    Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
    How are biracial people perceived in terms of race
  3. What Went Wrong at AIG?
    Unpacking the insurance giant's collapse during the 2008 financial crisis.
    What went wrong during the AIG financial crisis?
  4. Will AI Eventually Replace Doctors?
    Maybe not entirely. But the doctor–patient relationship is likely to change dramatically.
    doctors offices in small nodules
  5. Which Form of Government Is Best?
    Democracies may not outlast dictatorships, but they adapt better.
    Is democracy the best form of government?
  6. Podcast: "It's Hard to Regulate U.S. Banks!"
    Silicon Valley Bank spectacularly collapsed—and a new analysis suggests that its precarious situation is not as much of an outlier as we’d hope. On this episode of The Insightful Leader, we learn what went wrong and what should happen next.
  7. What Happens to Worker Productivity after a Minimum Wage Increase?
    A pay raise boosts productivity for some—but the impact on the bottom line is more complicated.
    employees unload pallets from a truck using hand carts
  8. Why Do Some People Succeed after Failing, While Others Continue to Flounder?
    A new study dispels some of the mystery behind success after failure.
    Scientists build a staircase from paper
  9. Marketers, Don’t Be Too Hasty to Act on Data
    Don’t like the trends you’re seeing? It’s tempting to take immediate action. Instead, consider a hypothesis-driven approach to solving your problems.
    CEO stands before large data wall
  10. Why Well-Meaning NGOs Sometimes Do More Harm than Good
    Studies of aid groups in Ghana and Uganda show why it’s so important to coordinate with local governments and institutions.
    To succeed, foreign aid and health programs need buy-in and coordination with local partners.
  11. Understanding the Pandemic’s Lasting Impact on Real Estate
    Work-from-home has stuck around. What does this mean for residential and commercial real-estate markets?
    realtor showing converted office building to family
  12. How Has Marketing Changed over the Past Half-Century?
    Phil Kotler’s groundbreaking textbook came out 55 years ago. Sixteen editions later, he and coauthor Alexander Chernev discuss how big data, social media, and purpose-driven branding are moving the field forward.
    people in 1967 and 2022 react to advertising
  13. How Peer Pressure Can Lead Teens to Underachieve—Even in Schools Where It’s “Cool to Be Smart”
    New research offers lessons for administrators hoping to improve student performance.
    Eager student raises hand while other student hesitates.
  14. How Much Do Campaign Ads Matter?
    Tone is key, according to new research, which found that a change in TV ad strategy could have altered the results of the 2000 presidential election.
    Political advertisements on television next to polling place
  15. Immigrants to the U.S. Create More Jobs than They Take
    A new study finds that immigrants are far more likely to found companies—both large and small—than native-born Americans.
    Immigrant CEO welcomes new hires
  16. Leaders, Don’t Be Afraid to Admit Your Flaws
    We prefer to work for people who can make themselves vulnerable, a new study finds. But there are limits.
    person removes mask to show less happy face
  17. For Students with Disabilities, Discrimination Starts Before They Even Enter School
    Public-school principals are less welcoming to prospective families with disabled children—particularly when they’re Black.
    child in wheelchair facing padlocked school doors
  18. Executive Presence Isn’t One-Size-Fits-All. Here’s How to Develop Yours.
    A professor and executive coach unpacks this seemingly elusive trait.
    woman standing confidently
  19. How Self-Reflection Can Make You a Better Leader
    Setting aside 15 minutes a day can help you prioritize, prepare, and build a stronger team
    Self-reflection improves leadership over time
Add Insight to your inbox.
More in Policy