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The Worst Part About Getting Sick Isn’t Medical Bills

Ray Kluender

(Bloomberg Opinion) -- Speaking at the signing ceremony for Medicare in 1965, President Lyndon B. Johnson declared:

No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime.

Since then, Medicare has proven to be a transformative program for insuring elderly Americans against the risk of illness and injury. This success has contributed to a growing effort to extend the program to all Americans, most of whom now get health insurance from their employers.

But whatever the benefits of Medicare for All, it wouldn’t address an even bigger financial challenge than high health-care costs. For many working-age Americans, medical bills are only a small part of the burden of getting sick; lost income can be a much bigger cost. In other words, fixing health insurance alone isn’t enough – and may even do less to improve patients’ financial security than policies that would insure against lost income.

Although some envy the safety nets in countries such as Canada and Denmark, where citizens are much better insured against the economic costs of illness, we often attribute this to single-payer health care. It may sound obvious, but health insurance only protects against the risk of medical bills. It doesn't protect against the risk of being unable to work.

Based on research published last year with my co-authors, in the three years after a hospitalization, out-of-pocket medical spending increased by about $1,500 a year on average for working adults with insurance. This pales in comparison to the average decline in earnings, which fell by almost $9,000 a year on average in the three years after a hospitalization for the same individuals. To put this in context, $9,000 a year is similar to estimated pay losses among manufacturing workers laid off when a factory closes. About 6% of working-age adults are hospitalized each year, and we estimate a 10 percentage point decline in the share who are working in each of the three years after an in-patient stay.

In the U.S., a huge gap exists between paid sick days, which can cover some short-term medical issues, and long-term Social Security Disability Insurance, which requires applicants to be out of the labor force for at least one year and comes with large barriers to going back to work. Just 39% of American workers have access to short-term disability insurance, a benefit available to just 15% of part-time workers. Most of these workers live paycheck-to-paycheck and can't afford to lose their income for even a  short period of time.

The good news is that we know how to fix this problem. Based on research in other countries, a combination of medical leave and short-term disability insurance – with a transition to long-term disability in severe cases – can shield households from economic catastrophe as a consequence of illness.

In a 2016 Pew Research Center poll, 85% of adults – including 79% of Republicans – supported some form of paid leave for workers with a serious health condition. Last year, ideologically disparate members of the American Enterprise Institute and Brookings Institution recommended development of a federal temporary-disability-insurance system to bridge the gap between paid sick days and long-term Social Security Disability Insurance.

Medical costs need to be reined in to protect Americans from the threat of financial ruin. However, if changes to the health-care system don't provide universal medical leave and short-term disability insurance protection, too many people will continue to be at risk from the detrimental economic consequences of illness and injury.

To contact the author of this story: Ray Kluender at

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ray Kluender is an assistant professor at Harvard Business School, where he researches the causes of financial distress among American households.

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