Health Insurance as a Personal Finance Issue?

(I don't keep up with law journals but seem to keep commenting on them.)

Christopher T. Robertson, Richard Egelhof, & Michael Hoke have a forthcoming an article "Get Sick, Get Out: The Medical Causes of Home Foreclosures" in the health law journal Health Matrix (issue 18 (2008): pps 65-105). The authors sent me a preview copy and it is intriguing.

They surveyed about 2,000 borrowers in 4 key states- California, Florida, New Jersey and Illinois. They pulled data from foreclosure filings with the goal of finding out what got borrowers into trouble. Only 7% of the valid addresses responded, or about 128 borrowers. Not a large sample and the authors concede there could be some bias introduced by low response rates. They do provide some evidence non-response bias is minimal and in any case I am not sure it casts too much doubt on key findings.

Prior studies suggest health problems are associated with financial problems. Overall, this study finds 7 out of 10 respondents had some medical issue in the last year prior to foreclosure being filed. Only 1 out of 3 borrowers blamed their default on rising mortgage payments (or ARM 'resets') and less than 16% said their loan was always unaffordable. Most were facing a combination of a drop in income and unexpected expenses. And most had equity in their home--the "underwater" mortgage story is not what they found even in CA & FL. Only 15% reported being upside down on their mortgage.

46% reported an injury or illness in their household as causing the default. 27% were prevented from working at all due to this and 23% cited high medical bills. Most (more than 2/3rds) had medical insurance, but uncovered costs ran $5,000 on average. Medical expenses eat up modest savings accounts in a hurry. For borrowers who cited medical bills as a cause of default, the average bill was $15,000. More than 1 in 4 used home equity to try to pay off medical debt.

The paper suggests a number of policy options, including staying foreclosure for medical emergencies (not unlike what was attempted post-Hurricane Katrina in certain areas - not related to health issues). It also highlights emergency 'bridge' grants or loans like those provided in some states, HEMAP in Pennsylvania being a leading example. It also suggests health care and consumer health care coverage may be a risk factor lenders and policymakers might need to take more seriously when considering mortgage markets and special mortgage programs for high-risk consumers.

The authors might be able to use some econometric techniques to produce more robust findings, especially related to non-responses. But overall it is a solid effort and suggests more inquiry into this issue is warranted.