The Effects of Health On Wealth

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.”