Does Major Illness Cause Financial Castastrophe?
This article examines the impact of serious illness on household savings among people aged 51-64. While substantial previous research has examined the relationship between wealth and health, this research focuses on how insurance, or the lack thereof, impacts financial assets when a new illness is diagnosed.
The authors chose to study the cohort of people aged 51-64 because individuals in this group have had time to accumulate substantial assets; are not yet eligible for Medicare; and have less time to recoup financial losses before retirement than younger generations. Researchers used data from the Health and Retirement Study from 1992 through 2006 to analyze surveys from 454 uninsured households with new illness and 3,175 insured households with new illness. To be categorized with new illness, a member of the household had to be diagnosed with one of six conditions: diabetes, cancer, lung disease, heart disease, stroke, or a psychiatric disorder.
- Uninsured households lose an average of 46 percent of financial assets following a major new illness, for an average loss of just over $4,000. Diagnoses of cancer, stroke, or heart disease were associated with steeper financial losses by the uninsured.
- Socioeconomically similar households with insurance did not show any financial losses following new illness over the two year course of the study. It is unclear whether financial losses would occur over a longer period of time.
This study shows that a single serious illness incurred by a member of an uninsured household usually results in severe financial losses. Lack of health insurance appears to increase financial vulnerability for older Americans not yet eligible for Medicare.