There’s been a lot of talk about how lack of sufficient health care is a major cause of bankruptcy in the US. Some of this is based on a couple of very bad studies, which essentially assumed that anyone who declared bankruptcy who had any outstanding medical bills at all must have done so because of medical costs, regardless of the relative size of their medical and other debts. But there’s also a legitimate aspect to this, though it doesn’t have to do with medical costs. Bankruptcy is often the result of some sort of unexpected circumstances (lost job, divorce, medical problems) which drastically increases expenses or lowers earnings. Obviously, if you come down with major medical problems, you may well end up earning less regardless of your medical bills, and this can cause bankruptcy.

Illustrating this is a recent study commissioned by the Canadian government investigating the high prevalence of bankrupty among older Canadians. (via Megan McArdle) The finding: medical problems is the number two cause of bankruptcy among Canadians aged 55-65, the group with the greatest propensity to declare bankruptcy. (see pages 18-19) Medical reasons comes in ahead of “loss of employment” and “insufficient income” and behind only “overextension of credit”. Now clearly, this cannot be because of medical bills, given that helath care in Canada’s single payer system is famously “free”. And this brings into question one of the key debating points of many health care reform advocates: that “millions” (cleary an exaggeration since the number of Americans to declare bankruptcy is a million or less each year for the last three years) of people declare bankruptcy each year because of unpaid medical bills.

In 2008, the US bankruptcy rate was only 0.3% higher than the Canadian one, and in 2006-2007 the US rate was actually lower than the Canadian one. Given these facts, it seems impossible to claim that lack of sufficient health insurance is actually a major cause of bankruptcy in the US — though it remains to be seen whether advocates of the reform package currently on the table will modify their rhetoric accordingly.